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  • building vs buying a home

    Has anyone looked into the costs/benefits of building a new home vs buying a home in a highly desirable area. I realized it might actually be cheaper to buy the land and have a reputable construction company build it than to buy a used home in the 1960s in that area.

  • #2
    Almost certainly cheaper to be a buyer in the 1960s.

     

    On a serious note, it could be better overall, but if its desirable Im sure you'll fetch a premium from the builders to account for that, but of course will be updated and to date codes.

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    • #3
      If I understand your question correctly, you are comparing apples to oranges- a new home vs a really old. A fairer comparison is building vs buying a newish home (built <10-15 yrs out). We looked at that and found that our money went farther with building- slightly. Add to that the intangible benefits of designing your space exactly as you want it, the difference widens. One thing to be aware of though, is the tendency of keep adding stuff because you are at the helm of things- and that can cause costs to skyrocket. good luck with your decision!

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      • #4
        We built a home. There is more to building a home,  than I realized. If it was that simple, why did not builder built  spec home?

        I would not recommend it unless your life and marriage needs to some spice and excitement.Our marriage survived it.

        However financially we took a beating on building our own home.

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        • #5
          I've built 2 homes, these are some thoughts I have about that:

          - People who build a home take a short-term value hit.  As in, you are likely to pay somewhat more to build a new house than if you bought a similar existing home in the same area. And if you were to turn around and sell it after a year (like I did once   ) you would probably not be able to even list it at what you paid for it.  Many times this is due to abundance of supply - in places where new homes are being built buyers have the option to build themselves and you compete against that.  As availability of places to build goes down in your area then this issue goes away and value comes up.

          - Assuming decent construction quality though you should save money on maintenance in the first 10-15 years, also assuming you take care of it and do necessary preventative maintenance.

          - There is a huge difference in energy-efficiency in new constructed homes.  I've moved a lot and lived in a lot of places, and homes built in the last 10 years or so are better insulated, have better windows, etc.  Many older homes lack this, though you can pay to have it done.  It makes a big difference in utility bills.

          I've really enjoyed living in new construction homes. If you can do it, and it makes financial sense, I would.  People talk about it being hard, and it really never was for us. We enjoyed it, but we were also frugal and realistic.  Many people can't help themselves from imagining their ideal mansion when they build and that's not really what you're doing (for most people).

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          • #6
            I live in a very expensive area.  Building your own is almost a necessity.  I could probably write a book on the subject.

            Simply put, people jokingly say that it will take twice as long and cost 2-3 times as much as originally planned.  This is not a joke, and not an exaggeration.  When you look at your actual costs, including rent during construction, and opportunity costs, taxes, interest, etc, the savings from building your own are simply not there.  Profit margins around here on spec houses are maybe 10%, for professionals.  As an amateur, you will probably pay more than if you bought new.

            Meanwhile, unless you have done it before, you have no idea how complicated and time consuming building a house can be.  You have literally hundreds, maybe thousands of choices and decisions to make.  If you delegate the choices, you'll be sorry, as you have to live with the consequences for years to come. (A trivial example: kitchen cabinet wood, cabinet style, cabinet layouts, internal hardware, external hardware, color of finish.  Multiply by several hundred. You think you won't care, but you will.  And each decision has financial consequences).  I have seen a friend's remodel end in a disaster.  The builder destroyed much of the house due to incompetence.  After lawsuits, they got nothing, due to bankruptcy of the builder and unlimited legal resources of his insurance company.  There's a steep learning curve to building, and it takes at least one house, maybe more, to learn the ropes.

            It's also a cliche that building a house can destroy marriages.  This is also not a joke.  We were ok, as we were living in an apartment when we bought and stayed there for the remodel. It was still a miserable experience.

            I think the best choice in my neighborhood is to buy an old house that you can afford, live in it for 5-10 years, and when you can afford to, tear it down and rebuild what you want. But that's only because buying a house in good condition outright is simply not an options for almost all physicians right now.  Of course, you'll have to spend money when you buy it on fixing it up temporarily, so it's more cost effective to do it all at once.

            But if you can afford a house in good condition that you like, you're better off just buying it.

             

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            • #7




              Simply put, people jokingly say that it will take twice as long and cost 2-3 times as much as originally planned.  This is not a joke, and not an exaggeration...

              Meanwhile, unless you have done it before, you have no idea how complicated and time consuming building a house can be.....

              It’s also a cliche that building a house can destroy marriages.  This is also not a joke....


              I'm sorry, I just have to reply back and say that this is way too negative a picture to paint.  Like I said, I did it and actually enjoyed the process.  Still happily married.  I did a 'completely custom' build and a 'big homebuilder semi-custom' build. Both were fine.  Our houses were/are very nice.

              I think that by prefacing "I live in a very expensive area" it is perhaps not surprising that your builds would be expensive and time-consuming.  Contractors have an excellent nose for money.  But elsewhere it doesn't have to be that way.

              The questioner did mention "highly desireable area", in which case probably no choice he or she makes will be "cheaper" in any meaningful way, so then just do what you want and what you can truly afford.

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              • #8


                I think that by prefacing “I live in a very expensive area” it is perhaps not surprising that your builds would be expensive and time-consuming.  Contractors have an excellent nose for money.  But elsewhere it doesn’t have to be that way.
                Click to expand...


                I'm happy for you, in that your remodel was so easy.  That wasn't my experience, nor that of my friends.

                The general contractor was a close friend.  He didn't make money on the deal.  Like all businesses, builders make a modest profit.  If they were making an enormous profit, they would be undercut by the competition.

                Maybe since you were "frugal and realistic" you were just having a builder put up a stock home, like in a subdivision.  That would probably be cheaper and easier than trying to build a custom home, but if that's what you're doing, just buy in a subdivision.   Where I live,that's not an option as the land is mostly all developed.

                Brand new construction is harder in some respects, because you have to bring in utilities and building permits are harder.  Remodels, on the other hand, often have hidden construction problems, and so the budget and time is less predictable.

                There was nothing unrealistic in what I described.  If you want to do the job right, you need to supervise the architect and plans.  Each change costs money and takes a few weeks. ( meet with architect, both spouses, and builder, discuss changes.  It takes a week or two for the architect to work on the changes, then a couple of weeks to set up another meeting.  Repeat several times.

                Then you have to shop for all the material: windows, molding, outside molding, roof type, paint texture, paint color.  Outside paving, driveway paving, fence, landscaping.  Cabinets, hardware.  Kitchen counter top : shape, material, color.  Fixtures.  Kitchen layout.  Skylights. Fireplaces.  Wiring, lighting : fixtures, types.   I can go on and on.  It's almost a full time job.

                Just think about the last purchase you made in which you had to choose among a variety of choices, say a car, or a tv, or a phone, something where you spent some time thinking about it .  Now repeat over and over again: Sink, faucets, toilets, shower shape, shower fixtures, shower tiles, etc etc.

                I have watched numerous rebuilds since mine: friends, colleagues, etc.  There are always problems and surprises, changes, and cost overruns.

                As I said, in an expensive area, buying a fixer-upper is a good way to buy a property and catch your breath for a few years until you can afford the remodel.  But it's a huge job, very time consuming, and quite stressful.  Lots of emergency calls, too. " we found a problem with the sewer line.  You have to come and take a look at this and decide how you want to deal with this."

                Anyone who undertakes this job should understand what they're getting into.

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                • #9
                  I've built once, and bought and sold existing homes a few times. We had a good experience with the build. It helped that my wife's family was one of the subcontractors and they were very familiar with the general contractor. As far as cost, we spent more than we should have for the area, but we got a really nice home and everything that we wanted.

                  A few years later, the local hospital went bankrupt, and I was stuck with the nicest home in town. A few years after that, we sold it for a loss (quarter million dollar loss). That stung, but was our idea to build the McMansion in the first place.

                  We'll probably build again someday when we are empty nesters. There is no better way to get all the features you want in a home and none that you don't.

                  As far as the original question, which costs more, I would guess it's highly dependent on the local market. As has been pointed out, there are some benefits to newer homes (energy efficiency, etc...) but some older homes may be very well built with features you won't find in new construction.

                  Best,

                  -PoF

                   

                   

                   

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                  • #10
                    Living in a high-cost-of-living area here. One of my peers bought a fixer upper, tore it down, and rebuilt. Spent 1.5yrs living in an apt building and spent a lot of time and frustration agonizing about the personal decisions for everything (someone noted cabinet finishes, etc.) and spent an equally agonizing time fighting the contracters who installed things incorrectly. Looking at numbers, expense seems to be about a wash with what current house values are now. I think advantage is probably more towards buying new than going through a new build or extensive remodel if home prices are very high.

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                    • #11
                      Wanted to bump this old thread

                      We were running into the same issue in a HCOL area

                      Buying a new home (<5 years old) in the more modern style we like seems to cost on average nearly $700k to $800k more than building our own home

                      We’ve received quotes from two builders and are interviewing a third. Both builders are quoting us nearly $700k to $800k less than comparable options on the market. I understand I’ll need to budget more money and time when dealing with a builder. My question is: are the builders compromising on quality to come in so much cheaper than other options already on the market?

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                      • #12
                        We just bought after we fully planned to build.  Pricing it out we were finding that in our area it would cost more to build and from talking to others it ends up being 30% more then what you expect so we decided to get most of what we wanted and bought.  I am glad we did because I am not sure we would have been able to make all the decisions needed to get a house built the way we exactly wanted.  This clip kept coming to mind though out the process;

                         

                        https://youtu.be/5vvWlZUYVOM

                         

                         

                        If you are finding that it is that much cheaper to build I would be suspicious and cautious but I would look into it.  Do not forget to add things like land development, driveway,  running utilities, landscaping,etc...

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                        • #13
                          My BIL is a doc, in his late 50's, and he and his wife recently built their third home. It has cost them a fortune, and nothing ever seems to work out as planned, they have changed their mind about their wants over time, etc. (He is on pace to retire at age 73 123.) I love my wife, but I am not sure our marriage could survive one house from scratch, let alone three!

                          In my thinking, it is more advantageous to find a home that is close enough to what you want, and let the chaps who built it originally to take the largest part of the depreciation hit. Then, tweak what you need to tweak to make it your own.

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                          • #14
                            Friend is a builder. He has told me it’s about 20-30% more to build new. You pay a hefty premium for all new floors, appliances, cabinets, etc and to customize as you like. Also, permits, construction loans. It goes on and on.

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                            • #15
                              Just remember that what the build quotes is half the battle... I just built in a HCOL and it was a total pain and something I'll never do again..  Just some of our fees:

                              - Purchase lot (RE fees, loan)

                              - architect fees

                              - structural engineer

                              - we had to pay for an "energy consultant" to ensure our home fit local code

                              - HOA design submission fees

                              - county building application (over 10k mind you)

                              - Construction loan + fees

                              - ACTUALLY BUILDING COSTS-> 10% over (which is common) -> all coming out of pocket

                              - Perm loan closing (2nd time over w/ fees)

                              - landscape architect

                              - Landscaping costs

                              - Stupid stuff that wasn't included in initial quote (blinds, ect)

                              Fun. Now you get to furnish it.

                              So hard to get a true breakdown of the real cost.

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