Building your dream home for retirement is not an uncommon goal for many Americans – I’m even considering it for myself, and I don’t intend to retire for at least 20 years. However, just because it’s a common dream doesn’t mean it’s an appropriate dream for a lot of investors. Sure, you may have several hundred thousand or a couple million in your retirement accounts. You’ll still want to think before you build your retirement dream home.

The three most important factors to consider before building a dream home are location, location and location. You’ll want to ask whether the location you’re looking to build on is an up-and-coming destination or one that’s had a downturn for several years. No one knows what the future will hold, but a home in a desirable location is more likely to sell than one in a depressed area; your estate will thank you.

If your chosen destination, even if it’s near water or a golf course, has had stagnant or declining home prices for years, it’s a sign that it might not be a good place to build a home. Another concern, according to an article written by Lisa Brown, CFP in Kiplinger’s recently would be the average length of time properties stay on the market in a given community. If there’s a low supply of houses and a short turnaround when they go on the market, your chosen location might be a good fit. If houses stay on the market for a year or more, it might be a good idea to look elsewhere.  Many retirees want to spend time with their kids and grandchildren. This might make it seem like buying or building a dream home near the kids would be a good idea. Think again. People move for their careers frequently. Sometimes, that move will be from one building across the street to another. Other job moves will require a move across a state or across the country. Building a dream home close to your kids today does not guarantee it will be close to your kids five years from now. Additionally, dream homes tend to be on the upper end of the price scale, and this can mean they’ll sell less quickly than more affordable homes. Therefore, if your main reason for building a dream home is to be close to your children, it might pay to ponder the decision a bit longer.

No matter how big your nest egg, you always need to think about cash flow. This goes if you’re 30 years old or 60 years old. Overspending on a home is bad for cash flow whether you’re making $50,000 a year with no money in your nest egg or making $150,000 a year with $750,000 in your nest egg. If you have a nice chunk rolling in from a pension or Social Security, this might work in your favor for building your dream home. Keep in mind that you may need to downsize your dream home a bit to keep more cash working in your favor regardless of your current financial situation.  Especially if you’re one that likes to keep you money moving in the stock market or frequent real estate deals.  You don’t want to have to sell when everybody else is.

It’s also a good idea to remember that most people decline physically over time. This means that a multistory dream home will be less accessible in a few years, by you and your in-home help if necessary. If you do need to hire some help, that will put additional strain on your cash flow as well.  Consider whether your Long-Term Care provisions will support your interests to be cared for in your dream home.

There’s nothing inherently wrong with building a dream home as long as you can afford it. However, there can be some pitfalls that come from building one for retirement. Most people will eventually have to downsize, and having too much equity tied up in a home can make it more difficult to do so quickly and efficiently – maybe two smaller homes in attractive real estate markets will be easier to liquidate. This is what I’ve decided to do to reduce my risk of liquidating in a tight real estate market, but also allowing me to reside in parts of the country where I can take advantage of the changes in the seasons.  Taking all facets of building or buying a new home into account is an important step to take before you ever sign on the dotted line.

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Destry Witt writes independently of his business, RELiANCE Investing, Inc., which is a Registered Investment Advisor only. This information is not intended to be personalized. This content is for informational purposes only. Nothing presented here should be construed by anyone as an invitation or solicitation to buy or sell any investment.