A few months ago I wrote about how my partner and I were trying to buy a cabin in our neighborhood as an investment property. Unfortunately, we lost it to another buyer who bid higher than what we were willing to pay.
We looked at other properties on the market, but everything was significantly more expensive than the house we lost. The cabin we wanted was $40K, and we can’t seem to find another fixer-upper for less than $70K.
We don’t want to spend that much on a property that still needs tens of thousands of dollars of work. So we’ve decided to save up a bit more money and build an investment property on our land instead.
How Much Will Building a Rental Property Cost?
We’re planning to buy a 650-square-foot manufactured home shell and finish up the inside of it ourselves to save money. Contractors need to make a profit and add a markup of 20% to 35% to their work. So we’ll save a significant chunk of money by getting our hands dirty instead of outsourcing all the labor.
We’re also planning to use wood from our land for the shiplap, wood flooring, butcher block countertops, and cabinets. We probably won’t have to buy much wood for the project, which will save us thousands.
Based on the quotes we’ve gotten from several construction companies, it’s going to cost about $30,000 to get a 650-square-foot manufactured shell delivered to our land and put on a foundation. Adding a septic system will cost about $5,000. There’s already a well on the land, so that will save us some money. As for power, we haven’t decided if we’re going to connect the home to the grid or install a solar system yet.
Although we’re still gathering quotes, we expect the project to cost somewhere between $60,000 and $80,000. Considering fixer-uppers with significant problems such as rotted floor joists are going for $70,000 to $80,000 in our area, building a cabin ourselves is a much better, cheaper option.
Reasons We’re Building a Rental Property Instead of Buying
The main reason we’re building a rental property instead of buying one is to save money. According to Realtor.com, it’s currently more expensive to buy an older home than to build a new one because of how hot the resale market is. On average, it costs $332,524 to build a house. The median sale price for existing homes is $447,000, so it costs significantly more to buy than to build.
Because it costs so much more to buy a fixer-upper than to purchase an unfinished, manufactured home shell, we would need to take out another mortgage to buy an existing home. Right now the average rate for a 30-year mortgage is 5.78%. Rates could climb even higher later this year.
By building our cabin in stages over the course of a few years, we can avoid taking on any debt. We’ll be able to fund it out-of-pocket without getting a construction loan with a high interest rate.
Our plan for this property once it’s built is to list it on Airbnb and see how it performs. But if that doesn’t work out, we’ll try to lease it to a long-term tenant or move into it ourselves and rent out the much bigger, 2,000-square-foot house we’re currently living in. We’re willing to do whatever is most profitable to accelerate our progress toward our financial goals like early retirement.
Have you ever built a home to live in or rent out? If you’ve never built a home, would you consider doing it as a way to save money? Share your thoughts in the comments section below!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.
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