What It's Like Building A $4+ Million New Home From Scratch
Apr 29, 2025
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Discover the fascinating journey of building a $4+ million home in Los Angeles. The discussion dives into the construction loan process and the key financial considerations involved. Hear insights on upgrading a luxury property and the importance of effective communication with builders. Experience the challenges of moving into a new home, including road noise issues, and the role of builder warranty coverage. Gain practical tips for navigating home construction and learn valuable lessons for future high-end homebuyers.
Harry's buy-and-build strategy, involving a $2.2 million purchase followed by a $1.65 million construction loan, facilitated a customized home experience.
The construction loan's interest-only structure and the builder's reliable financing partnership greatly contributed to a smooth project timeline despite delays.
Investing $574,000 in personalized upgrades allowed for emotional investment in the new home, despite challenges like communication issues with contractors.
Deep dives
The Buy and Build Process
A recent purchase involved a buy and build strategy where a buyer worked with a popular builder in Southern California. The initial property was bought for $2.2 million, followed by a construction loan of approximately $1.65 million, bringing the total cost to around $3.85 million. This approach not only streamlined the buying process, but also allowed the buyer to customize their new home to fit their preferences. The buyer expressed satisfaction with the overall experience, particularly enjoying the partnership with the builder that provided a smooth financing process.
Construction Loan Insights
The construction loan utilized by the buyer was structured to be interest-only during the project, which lasted longer than initially expected, with extensions managed smoothly. A third-party inspection company verified work progress, which added a layer of reliability during the construction phase. The low interest rate of 4.625% proved advantageous as rates climbed, allowing the buyer to feel secure in their financial commitment. This experience highlighted the importance of selecting lenders with established relationships with builders, as it simplifies the financing experience.
Tax Implications and Financial Management
Throughout the construction period, the buyer was responsible for property taxes amounting to $59,000 over two years, based on the initial purchase price rather than the final assessed value. There were advantages in managing property tax payments, as the buyer anticipated potential savings due to market inefficiencies in assessments. Notably, significant upgrades made to the property during construction did not immediately impact tax assessments. The buyer's strategy underscores the financial management challenges new homeowners face while balancing ongoing expenses with budgeting for upgrades.
Upgrades and Customization Experience
The buyer invested approximately $574,000 in upgrades, customizing features in the new home such as appliances and landscape enhancements, which were primarily guided by their partner. The construction phase allowed for a degree of personalization while also uncovering unexpected challenges, such as delays and miscommunications with contractors. Despite some frustrations, the couple enjoyed the opportunity to significantly enhance their new home, indicating the emotional investment in making a house truly theirs. The journey involved a delicate balance between aspirations and practical decision-making throughout the upgrade process.
Living in a New Home and Future Aspirations
Moving from a $2 million house to a newly constructed $4 million home provided the family with a sense of accomplishment, particularly with their children secured in a good school district. The buyer noted both the pleasure of living in a beautifully designed home and the challenges of dealing with minor post-purchase issues that come with new builds, such as appliance malfunctions. With plans for future investments, the buyer expressed interest in potentially scaling up again, indicating a preference for larger lots and better views. This reflects a broader ambition not just to upgrade living spaces, but also to cultivate an enriching environment for family life.
In this episode, I talk with Harry, a long-time Financial Samurai reader, about his journey to building a $4+ million home in the Los Angeles area. While most people buy move-in ready homes, Harry shares an insightful behind-the-scenes look at how it's done — from financing the project to the timeline it takes to build, and whether it's ultimately a good investment.
This episode is brought to you by Fundrise, my preferred private real estate investment platform. Fundrise predominantly in residential and industrial commercial real estate in the Sunbelt, where valuations are lower and yields are higher. I've personally invested over $300,000 in Fundrise to diversify. The investment minimum is only $10, so it's easy to dollar-cost average in.
If you’re ready to build more wealth than 93% of the population, grab a copy of my new book, Millionaire Milestones: Simple Steps to Seven Figures. With over 30 years of experience working in, studying, and writing about finance, I’ve distilled everything I know into this practical guide to help you achieve financial success.
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To Your Financial Freedom,
Sam
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