Is It Cheaper To Build Or Buy?

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It’s time to think about packing up your belongings and moving into your dream home. But what is your dream home? Is it a remodelled existing house or something you build from scratch? Does a new construction meet your needs and your budget? Do you know off the top of your head if it’s cheaper to build or buy a house?

The perfect house is hard to come by. There’s a long list of things to consider: style, space, neighbourhood, schools and—perhaps most importantly—cost. When you’re attempting to check off all the boxes, it can be challenging to find an existing property, which is why many people choose to build. Still, figuring out the cost of building a house vs. buying can be a challenge. Here are a few things to keep in mind. At MJS Construction Group, we have the best home builders selection to make your house a dream come true.

The Costs Associated with Building Your Home

Buying an existing home and fixing it up to meet your needs is an excellent idea that many new homeowners choose to capitalize on when purchasing their first home. Fixing up a home adds to its value, leaving you with more equity in the asset.

You have the option to stay in residence or flip it for a profit. Many young couples fix and flip existing homes to make money, living in the house while making the alterations. However, you’ll be pressed to find a home for under $150,000 that does not require some serious remodelling. If you are the type of person with no interest in fixer-uppers and want to move into your perfect home, ready for use from day one, then a fixer-upper is not for you.

Building a home is a far more extensive preparation process. It’s not as simple as picking a location and pointing to a picture in a magazine. We decided to give you everything you need to know about building a home. Review the list and see if you have what it takes to develop your residence instead of buying existing construction.

Buying Land

Building your home requires you to buy some land. This situation presents a double-edged sword, depending on the circumstances. If you’re trying to develop in California, you will have a hard time finding open lots in areas like San Francisco. Even if you manage to find a large plot, you can bet your bottom dollar that it will cost a small fortune.

If you’re looking to build a home in these densely populated areas, then you may as well throw your dreams in the dustbin and start searching for existing construction to buy. However, moving to states like Maine make it affordable to purchase land and build your home. Some plots in Maine go for as little as $20,000 for a few acres.

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Rural areas will always be cheaper than plots in the suburbs of busy towns – making the right purchase decision is all about filling your needs. Therefore, if you’re working in the tech sector in Silicon Valley, it’s probably a better idea to buy rather than build your home.

However, if you’re out in the country, or you live in a less densely populated part of the country, building your home could offer better value for your money.

Building Loans

If you’re planning on buying existing construction, then purchasing your house is as easy as applying for a pre-approved loan at the bank and then going house-hunting for something in your price range. However, lenders do not issue mortgages on plots of open land.

As a result, you’ll need to apply for a building loan from a financial institution or lender. These facilities have more in common with a credit line than a mortgage. Banks issue you the loan, and you draw down on it based on your current building expenses, leaving the rest in the account.

You only pay interest on the money you use, and the duration of the loan determines how much time you have to complete your construction. Most building loans come with a 12-month facility for drawdowns before the lender shuts down the account and starts charging you for the money used in the loan period.

Some building loan companies offer moratoriums on their loans. Using this strategy allows you to benefit from no payments to the lender during the loan term. After the period ends, you pay off the loan like you would a mortgage – with monthly payments on the outstanding debt.

You can use the funds for any building-related costs, including pouring a foundation, constructing the frame, and laying the roof. Most lenders require you to submit an invoice from a supplier or contractor before releasing the funds into your bank account for use in the construction of your home.

Building loans typically cover amounts used for building on land that already has utilities and sanitation installed. However, if you want to develop on land with no existing services, you may need to apply for a raw land loan.

Lenders consider these deals risky, so prepare to pay up to 50-percent of the cost of the land for your down payment. However, raw land is far cheaper than developed property, and you can probably pick it up for a more affordable price than offsets the more substantial down payment.

Getting on the Grid

Buying new or existing construction can save you time and money by managing your utilities. All you need to do is make your monthly payments, and the lights stay on in your home. However, if you’re building on raw land, then this is where the job can get expensive.

Let’s review the utilities you’ll need to install on your land for your new development.

  • Sewage – According to data from Home Advisor, the average cost for septic tank installation is between $2,738 and $8,186.
  • HVAC – If you’re living in an area of the country like Maine, then you’ll need heat for the wintertime. Installing a whole-home HVAC system can cost you anywhere between a few thousand dollars, up to $14,000 – depending on the size of your home.
  • Electrical Systems – you’ll need to hire professional electrical contractors to rig the lights and electrical outlets in your home. This task can cost a few thousand dollars – call around to different contractors to get the best price.
  • Landscaping – Many new homeowners don’t realize the cost of a yard. The chances are that you aren’t going to be happy with a pact of dirt for your garden, so hiring a landscaper is a must. The cost of plants and landscaping can become astronomical, ensuring you get competitive quotes from multiple contractors.

Living Off the Grid

With the current state of infrastructure in the United States, many new homeowners are making a move to take their home off the grid. What does this mean? Going off the grid means that you no longer rely on local services for your utilities.

Some homeowners choose to do a partial off-grid installation. They may decide only to install renewable solar power in their home while leaving the municipal water supply connection.

However, some people decide to drill wells for their water and use composting toilets for sanitation. This strategy takes them off the grid entirely.

This strategy works for both new builds and existing structures. Here’s what you need to make your home an autonomous environment.

  • Solar panels – This is the most significant expense related to installing renewable power in your home. Good quality solar panels can cost anywhere up to $14,000 for a whole-home installation.
  • Batteries – You’ll need a bank of 5 to 10 deep-cycle batteries with capacities of 100MAH or more. These can cost up to $200 per unit.
  • Inverter – a 5Kva inverter capable of running your home power needs will set you back anywhere between $500 to $1,000.

Hire a Contractor or Do It Yourself?

If you decide to build your home, you need to ask yourself if you will be taking on this task yourself. Or you are hiring a contractor to do the work for you. When it comes to fixing up an existing home, it’s possible to do things like changing the flooring, refurbishing the HVAC, and painting the walls yourself.

However, building a home from the ground up requires electricians, architects, and engineers’ expertise. If you don’t have all of those skills, you’ll have to hire a professional, and top-quality contractors come with expensive hourly fees. Looking for dual occupancy? Look no further! MJS Construction Group has you covered. 

Making the Right Decision

Evaluate the Pros and Cons of a New Home

New homes are typically far from the city centre; will you mind the commute?

Are you willing to coax a new lawn into existence, and can you wait 20 years for sapling trees to mature?

Will the cookie-cutter nature of new subdivisions drive you bonkers?

New houses tend to be built right on top of each other. Do you mind the closeness and potential lack of privacy?

Evaluate the New Neighborhood

Check with the developer about potential homeowners’ association (HOA) fees and rules; some are costly — and strict. They may not allow storage sheds, specific paint colours or finish materials, solar panels or even vegetable gardens. Be sure to find out if the HOA can assess penalties for infractions.

Ask whether cable and Internet are readily available and from what companies; your new house will be wired for cable, but that does not mean the cable company offers service to your neighbourhood.

If the development is still under construction, you’ll be dodging giant contractor trucks and facing jackhammering at 7 a.m. for a while.

Be Agent-Savvy

Remember that the real estate agents working to sell new homes work for the builder, not for you. They’re trying to hit a quota, not help you make the right decision for you and your family.

Many states regulate how agents deal with new subdivisions. If you have your agent, tell him up front that you’re interested in looking at new homes. He must accompany you on your first visit to any new subdivision; if he doesn’t, the builder’s sales rep will get the full commission if you buy a home there.

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Get the Skinny on Your Builder

Make sure there are no Better Business Bureau complaints on file against your builder’s company.

Ask your agent if the builder has a good reputation in the community.

Visit your builder’s previously constructed homes; ask the occupants whether the craftsmanship has stood up to time, use and weather.

Upgrade the Smart Way

Builders rake in cash on upgrades because they can get parts and labour relatively cheaply. The markup is huge, so investigate each option you’re considering to see whether it would be cheaper to bid it out after you move in.

Builders, in general, need to sell quickly to make a profit. If you’re stuck haggling over price, get them to throw in the upgrades you want at a reduced cost or for free — it’s a way to get more value that’s appealing to both sides.

Don’t Skip the Inspection.

Never assume that because a home is newly constructed, it isn’t going to have defects. Make your sales contract contingent on a final inspection by a professional you hire.

If possible, have the home checked during each phase of the building when potential problems are easier to spot. If the builder objects to this, consider it a red flag.

Know that municipal inspections for code violations are nowhere near as thorough as an independent professional inspection is.

Protect Yourself with Warranties

All new homes come with an implied warranty from the builder stipulating that any major defect of the home’s structural integrity must be repaired.

You should ask for a builder’s warranty for some time following move-in (a year, for example), covering any defects in craftsmanship.

Preferably, this warranty should be backed by insurance.

Ensure any warranty you receive explicitly states what is covered and what isn’t and the limitations for damages.

For extra peace of mind (which we’re fans of), whip out your real estate attorney again and have her look over the warranty to make sure it’s kosher.

Pros of Building a House

Okay, now that we covered pricing, let’s look at the specific benefits of building a house:

  • Customization. If you build a house from the ground up, you’ll get to personalize the details to suit your lifestyle and tastes—from the layout, cabinets and flooring to the sinks, lighting, paint colours and doorknobs! Even tract homes built within subdivisions allow for customization in colour choices, flooring options and specific finishes.
  • Low to no competition. In August 2020, existing homes were on the market for an average of 22 days!4 With homes flying off the market so quickly, round to find the best existing home at the lowest price can be challenging. But if you already own the land you want to build your home on, you have zero competition!
  • Lower maintenance. Since new homes are built to meet current building codes and have up-to-date technology, you probably won’t have to worry about extensive repairs or severe maintenance issues for the first few years—meaning no leaky roofs or failing HVAC systems! Plus, many homebuilders offer a limited warranty if something should break.
  • Lower energy costs. New homes often feature the latest energy-efficient systems and materials, which usually leads to lower energy bills—woo-hoo!
  • Newness. You get to start fresh as the first owner of your home and enjoy brand-spanking-new systems, finishes and fixtures.

Cons of Building a House

Okay, we already know one disadvantage of building a house is that it’s more expensive—which isn’t so bad if you’re able to budget for it. But now let’s consider all the other cons of building a house to cover our bases: Check out our range of dual occupancy builder for your dream house.

  • Longer wait time. It takes an average of seven months to construct a new house—not counting the planning and approval stages.5 This means you’ll likely have a gap in living arrangements between the time you sell your old place and build your new one. So you’ll need to be prepared to cover the cost of renting until you can move into your newly built house.
  • Harder to negotiate the price. Most buyers go into a home purchase hoping to lower the cost. While that’s super common in the resale market, new homes are a bit different. Usually, there isn’t much leeway on closing costs or purchase price with a builder—unless your real estate agent brings a creative mind to the negotiation table. Still, you’d probably get more bang for your buck with an existing home.
  • Noise and mud. If you build a house where other new homes are being made, you might have to deal with construction noise, traffic and glops of dirt along your commute. Sure, things will eventually calm down as other homes get completed, but it’s something to think about if your tolerance for noise level and messiness is on the low end.  
  • Stress. When you build a house, you’ll have to purchase land, decide on a home design, pick out flooring, fixtures, cabinets, countertops, interior trim, exterior trim, and on and on it goes. You’ll have to do all of this and stay within your budget. Managing all the details that go along with building a home takes time and effort. Don’t underestimate the depth of stamina you’ll need to make sure it’s all done the right way.
  • Hidden costs. Those dollar signs you see on the sticker—for things like countertops, fixtures and appliances—are just the tip of the price-berg. Upgrades can quickly drive up the price of your new home and may or may not be rolled into your contract price. Play it safe by budgeting for only those you can cover with cash. And don’t forget about post-move costs like landscaping and blinds—they’ll sneak up on you too.

The best way to choose whether you should buy or build a house is to talk it over with an experienced real estate agent. Your agent will know where to find the best deals in long-standing neighbourhoods or up-and-coming communities. And they’ll help you decide if building a house or buying an existing home will suit your needs best. 

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