Unreal Engine 4.2# or 5.0 would be excellent for 7 days to die Survival game.
I would recommend you be a little familiar with either C++ or fluent in the Blueprinting system in Unreal.
Everything your need is built into the engine, and there are tons of free assets on the epic games store and free characters on Mixamo to help you your project started. I would recommend however before you attempt any release, you build or have someone build your own models.
considering Lumin and Nanite being in the Unreal Engine 5 release, there is no better time to start. and learn how these engines plugins will work best for you. Nanite, guaranteed will cut down on your lag on the client side.