Building your retirement home. How to go about selling your current home and renting while your retirement home is built.

Q: We live in Alaska. We have property in Washington that has a large shop on it and we also want to put a house next to it. We are selling our Alaska home and will rent until we can retire in a few years. With the money from our house sale we want to put a down payment on a house for our property in Washington. 

Will this be possible if we aren’t planning on living in it for a few years full time? Our credit is excellent, we both have full-time jobs we have been at for over six years each and the only money we owe is our car payment. Thank you.

Building Your Retirement Home

A: If we understand you correctly, you own a property that has a commercial shop on it. But the property apparently is big enough that you can build a single-family house on the same property.

Can you do this? Maybe. You should first check with your local municipality to see if there are any building code or zoning requirements that could preclude you from building a residential property on land that is zoned commercial. 

Some, but not all local municipalities prefer not to mix residential and commercial properties, unless there is a mixed-use development. Those developments could include first floors with commercial use structures, like a restaurant, shop or bank, with second-floor offices, rental apartments or even condominiums. Mixed-use developments allow communities to create work-live-play neighborhoods that can become prime properties that draw users from outside the community. It’s the way many young people want to live today.

If your Washington property’s current zoning does not permit residential development, you’ll have to investigate the issue and figure out if it’s worthwhile trying to get things changed to permit what you want to do with the property. That may be difficult, time-consuming and expensive– in particular if you must change the zoning for the property. Otherwise, you will not be able to do that, at which point you’ll have to decide if you want to take the money from your sale and buy or build a different home nearby or sell the existing property and buy something else that would permit multiple uses.

Getting a Loan to Build Your Retirement Home

It’s good that you’re planning to have a period of years in between selling your existing home and your new multi-use plan because you can use that time to explore the local zoning ordinances and, if the use is permitted, find an architect and contractor, draw up plans and get a loan. 

And about the loan: When you have a piece of vacant property, it’s typically difficult to get financing on which to build a house. But, since your property already is income-producing, it may be easier to take out a loan where the commercial part of the property acts as collateral. That, along with your down payment, should be enough to build your new home. 

What you’re planning isn’t straightforward and you’ll need some help to figure all this out. Consider hiring a real estate attorney (who can also help you sort through zoning laws and building requirements) and finding a good local lender to review your options and help you make smart decisions. 

Next Steps

But, start with a call to the municipality in Washington where your commercial property is located. Ask about permitted uses, and whether you can build a house on the property (and how big it can be). 

Assuming you get a positive response and understand what you can build, next call your lender to see what kind of loan you’ll be able to get, and for how much. Then, talk with some local architects and builders about what kind of home you want to build and start getting some back-of-the-envelope costs to explore the design/build phases of construction. Once you choose an architect and decide on a design, you can shop that around to a few different contractors or builders to get a sense of the true cost of the project. Once you’ve agreed to cost, and the estimated timeline, you’ll want to have a real estate attorney draft up a construction agreement that puts a number of safeguards in place for you as you go through this project, and then get your loan finalized.

We think that you should consider renting in Washington during the design/build phase because you’re going to want to watch closely as your home is built. This is a huge investment and you’ll want to be close by for the myriad of last-minute decisions that need to be made and so that you have the fun of watching this most creative of projects – building a home you designed – takes shape.

It’s a good thing you started planning now – the project could take several years from start to finish. Good luck!

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