Tips For Budget-Friendly Internal Home Renovations
Looking to renovate the interiors of your home without breaking the bank? Then we’ve got you covered with a few handy tips.Read More
There are but only a few things more precious than your home!
And when it’s time to get one, the excitement and joy become boundless. However, getting your emotions to cloud your judgement may not be the wisest thing to do- especially with an investment this big at stake.
At this stage, the first thing to answer is whether to buy or build the house of your dreams? And that comes with a lot many factors to consider.
So, we’ve compiled a guide featuring every detail that will help you make the best decision. After all, it’s not every day that you set out to own a home.
Cutting straight to the chase, the decision of buying vs. building a home mainly depends on the cost. And honestly, it’s not easy answering whether purchasing a ready-made home or building one will cost less. Various factors should be considered before making a decision.
Moreover, it’s an equally challenging job to pinpoint the multiple variables at play, even when talking about the same city or state. But to get an idea, we took some help from the annual (2020) State of the Land Report of the Urban Development Institute of Australia for median costs and lot sizes.
Quite unsurprisingly, Sydney was the most expensive city with a median lot price of $459,000, followed closely by the Australian Capital Territory, where the median lot price is $423,000.
In contrast, Adelaide’s median lot price of $180,000 was the cheapest. Overall, the national average stands fairly high at around $322,000.
But there’s more to the story. While constructing a home doesn’t involve paying stamp duty directly, you still need to pay it for many lands.
A lot of states exempt first-time buyers from paying the stamp duty, but this legislation varies from state to state. As a result, predicting the exact cost of building a home becomes more difficult.
Another thing to consider while building a home is the lower range cost. Here again, the prices will differ according to the type of the building and location. To make things slightly less complicated, we fell back to the data from Rider Levett Bucknall, which contains the country’s construction building costs from the fourth quarter of 2019.
In this regard, the categories are custom-built, single, and double-story homes, but we didn’t differentiate for the sake of simplicity.
Unlike the median lot price rankings, it was Victoria with the most expensive lower range cost of $423,808. Similarly, South Australia emerged as the cheapest state with about $314,736. In this case, the national average is $381,697.
Image Credit: Propertyology
However, it should be kept in mind that these figures are highly rough estimates. This means they don’t factor in intricate details like land levelling, material cost, accessories, deadlines, delayed timeframes, and so on.
Likewise, you can calculate the final price of constructing a home using these very rough estimations by adding the median lot cost, low range cost, and stamp duty. Saving you the hassle, Sydney secures the top spot with a total cost of $867,864.
It’s followed by Sydney, with prices near $844,594. And Perth is the cheapest city with a construction cost of $554,935.
Overall, the national average of building a home is approximately $714,489.
|City||Lower range cost per sqm||Average floor area m2||Low range total cost|
So far, we have focussed on estimating the construction costs (minus the other details) across the country. Now, it’s time to get an insight into the median housing values to see which option will prove to be more cost-effective.
For this, we have the evaluations from CoreLogic for April (released in May), which reveal the median housing values in the capitals and the national average. And Sydney is the only capital where it’s cheaper to build a home with a total build cost of $867,864.
Alternatively, the median housing value in Adelaide hovers around $462,000. Similarly, the national average median housing value ($624,882) is less than the national building costs ($714,489).
Again, these figures only pertain to the capital cities, since it’s difficult to accumulate the data for regional areas. Therefore, there’s every possibility that the scenario may change in those regions.
Not to sound contradictory, but it’s not unusual for homeowners to keep the cost factor on the sidelines, mainly because of the advantages associated with each option. Thus, it becomes crucial to assess the pros and cons, and we’re going to do just that in the following sections.
There are three main types of homes to consider while building a home, namely:
Manufactured homes are usually built-in facilities transported to the location in one piece. Once there, it’s placed on the frame that can be picked up for shifting purposes and doesn’t cost a fortune to build.
While built along the lines of a manufactured home, modular homes are transported to the site in multiple pieces and assembled on the location. It’s placed on a permanent foundation and can’t be transported to other places.
Also known as stick-built homes, these structures are built on the location and are generally the most expensive among the three.
Without a doubt, customization is one of the biggest advantages of building a home. When you’re constructing a house from scratch, it typically means that you can be involved in every step. Whether buying the land, choosing a builder, or deciding on the minute interior details- you have everything under your direct watch.
The construction and building industry have a reputation for being so diverse because of the variety of homes and features that they bring to the table. For instance, if you want to have a ten pin bowling alley in the basement (and have the funds to do so), then go ahead!
On the contrary, finding a ready-made house that includes all your preferred features can be a rather time-consuming affair. Sure, you can always modify the existing structure to suit your current requirements. But at that cost, you might as well build a new one.
Other than that, investing in high-quality materials reduces maintenance costs a few years down the line. Not only that, but it also increases the value of your home during resale.
If your purchased home has had maintenance issues, be prepared to shed extra for repair work.
According to a recent survey, ready-made homes were on the market for less than a month. Finding a suitable home within your budget can be highly stressful with such low retention time. But if you already have the land, there’s virtually no competition or rush to get the home of your dreams.
As the name suggests, the First Home Owners Grant (FHOG) is an incentive provided to first-time homeowners to buy real estate.
Although the amount differs between states and territories, homeowners can expect a minimum grant of $7,000 from the respective authority as of December 2020. Many people use this fund to save up for a deposit.
Image Credit: Peoples Choice
While your real estate agent will assist you with the exact procedure, one thing to keep in mind is that the fund exclusively applies to only those who have never been preoccupied in many states. Hence, your home must be built on the property for you to avail the fund.
You may remember we previously mentioned that property owners do not have to pay the stamp duty for the structure but on the land. Moreover, first-time homebuyers may be eligible for a concession; naturally, not everyone fits this criterion.
Plus, the stamp duty alone can cost thousands of dollars.
Let’s take Sydney, for example. If you build on the median $459,000 land lot, the stamp duty costs can increase by $16,000. On the other hand, buying a ready-made home in the city at the $889,000 median price will come with a stamp duty cost of $35,000. Simply put, it costs you more than twice the stamp duty for buying than building a home.
Energy efficiency plays a significant role in personalizing a home. Thus, choosing energy-efficient options can save thousands of dollars on power consumption.
As per a report by Ergon Energy, Australians spend an average of $1,500 per year on electricity and gas bills. Besides, most of it goes behind air conditioning, heating, water, and powering appliances.
Not only that, but Australian households account for some of the highest electricity bills in the world. In such conditions, energy efficiency becomes one of the critical considerations when moving into a new home.
Some of the most common methods employed across the country include installing high-quality materials like double-glazed doors and windows.
Apart from blocking out noise, these fixtures also reduce heat penetration by up to 40%. And less heat means less air conditioning.
Another option that’s slowly gaining popularity is the use of solar panels, which is a sure-shot way for long-term savings.
Depending on energy consumption, solar panels can cost anywhere between $2,500 and $12,000.
Solar is great for pool heating or anything that may consume more power, like air conditioning or large freezers.
Additionally, solar energy may take quite some time to justify your investment. But the savings post the recoup period can well be in tens of thousands for the next 2 or 3 decades, which is the average life of a home loan. Beyond that, solar panels can increase the market value of your home.
Despite having some considerable advantages, building a home is unfortunately not free from its own set of cons. Among the most noteworthy disadvantages are:
Unless you have some significant requirements (like the ten pin bowling alley), building even a standard home can take anywhere between six months and a year. And that’s not all.
You possibly can’t move into your home as soon as the construction is complete. Setting up the interiors will take another 3 to 4 weeks, and not everyone might want to stay in with the hassle of painting, fixture installation, etc. And if you’re living on rent, that will be an added expense to the home building cost tally.
If you’ve purchased a ready-made home, you can move in immediately after the finances and paperwork are complete.
Much like home loans, construction loans are a specific type of funding designed to assist the construction of homes. Although construction loans are almost instant for home building, they sadly don’t function as generally as home loans do. Perhaps the most significant negative is higher interest rates, correlating to either a long-term or costly repayment.
On top of that, many construction loans may require higher fees and larger deposits, and securing one can need tons of paperwork, thereby delaying the construction.
No matter how much time you dedicate to maintaining a constant vigil at the construction site, there will still be certain factors out of your control. For instance, steady rain for longer periods can bring the work to a complete standstill. Plus, there’s the added hassle of water drainage.
Worst still, nature’s fury can hamper the already built parts, and a rework will add to the cost and timeframe. Similarly, certain costs may crop up suddenly, especially if you weren’t careful during the planning stage.
Buildrite takes the time to ensure everything is planned out, but if you have chosen another builder, this needs to be considered.
Till now, we’ve only talked about building a home on a vacant lot of land. Likely, you won’t have the luxury of constructing a house in a Central Business District or on its outskirts. Since cities are generally more apartment-oriented, where buyers can move in quickly, you may have to look into the suburbs.
This downside is that your area may not be well connected to other essential locations, like the school or office hub.
While deciding on every little detail may seem like an exciting prospect, it may turn into a headache real quick, more so if there’s no expert opinion handy. Remember, your builder can suggest options, but the final call will be yours to take. Plus, hiring a home designer will invariably be an extra financial burden.
The scope of negotiating for constructing a home is pretty less compared to purchasing a home. And there’s no rocket science here.
Negotiating the prices of individual factors like building materials, power lines, etc., is a far more complex and tiring task than negotiating the cost of the home as a whole.
In the age of technology and the internet, home buying can be accomplished from the convenience of a mobile device. With so many home buy websites at your disposal, going through the properties is as easy as watching a video on Youtube.
Especially in the pandemic when the whole world is locked inside, you can buy a home without ever seeing it physically.
In addition, to keep up with the competition, some lenders boast of processing the loan application in a matter of a few hours.
This means, upon completing the formalities, homebuyers can move into their new residence only a week later. Of course, it’s a hypothetical situation, but it can still be faster than building a home from the ground up.
As the country’s population is on the rise, so are the number of houses being built. Naturally, blocks of land are being snatched up faster than ever for construction. Therefore, buying an established home in your desired location and with all necessary institutions in the vicinity is a less tiring job now.
At this point, you may know that securing finances while buying a home is more accessible than home construction. While a 20% deposit is typically sought-after, many lenders also offer the luxury of availing up to 95% of the property value, provided you sign up for the Lenders Mortgage Insurance.
Moreover, they have much lower interest rates than construction loans and are available in the fixed and variable categories. A basic comparison between construction and home loan lenders will give you greater options to choose from for the latter.
The talks of personalization are all good unless you see that your desired copper-coloured shower is black instead. And this is just one of the numerous discrepancies that can creep into your home. The chances are highly likely for ready-made homes that you know exactly what you’re getting. And for best results, we’d suggest hiring a property inspector before purchase.
Let’s now take a quick look at some of the hassles of buying a home.
Buying a house doesn’t necessarily mean that you’re buying a new one. It may also be the case that you’ve opted for a pre-owned residence, which is perfectly fine. However, it’s almost inevitable that such properties will have some wear and tear, which will ultimately be your responsibility to look after.
Moreover, the maintenance will only increase as the years go by. Similarly, older houses may have high electricity bills without proper insulation and energy-efficient options.
Even installing these will burn a large hole in your pocket. Hence, you may have to pay more attention to choosing a system that will put the most minor strain on your expenses.
Renovations are always possible on a home you bought, such as adding an extension or a brand new pool. Planning and construction work can typically be done in a timely manner.
Besides the exorbitant stamp duty cost, first-time homeowners will have less financial assistance from authorities and the government if they aren’t buying new homes.
For example, many states have shifted the FHOG only in favour of buying homes not owned before.
Not all of your desired features may come with a ready-made home. And when you don’t see them on the list, your search gets restricted.
Even apparently basic features like a swimming pool or two-car garage may be challenging to find in your location or budget.
Building a home is a long-term commitment.
The early stages of designing won’t put you in a fix, nor will they take up a lot of time. And that may give you the illusion that the rest of the process will be as easy. But things will get messy if you’re preoccupied with other things, like a full-time job or family.
Furthermore, there may be frequent instances when you need to make a final decision with barely any knowledge about the problem. A cluttered mind will make it more challenging to make quick decisions.
Building a brand new home can be an absolute pleasure as well. At Buildrite, we take the time to ensure your new home is made to the highest of standards with a stress-free experience. But this isn’t the case with all builders.
To avoid challenging things, here are some questions you should ask your builder before building.
For most people, building a home is a once-in-a-lifetime affair, and the last thing they’d want is to get the wrong hands for the job.
The single most significant factor determining the journey is the relationship the two parties share, especially those who don’t have any prior experience with construction or architecture.
Thus, we’d recommend investing a great deal of time in gathering every bit of information available about your preferred builder. List down all the questions that you think should be answered by them in the job context. Also, look for referrals or previous clients, and talk to them about their experience.
Since it requires a clear stream of communication between the homeowner and the builder, make sure you go for the one worthy of your trust.
Unless necessary, try not to introduce last-minute changes to the design as it can also disrupt the surrounding setup.
For example, if you suddenly decide to paint the kitchen wall red instead of yellow, it can also require you to change the colour of the kitchen table. This will add to the trouble of both an extended timeline and additional costs.
Just because you have found a home well within your budget doesn’t mean it will be the best fit for you.
While certainly not always, reduced costs can indicate a troubled neighbourhood. Therefore, it’s vital to investigate the district’s quality and services. After all, you wouldn’t want to live in an area with a high crime rate.
Likewise, factor in the commute time to your places of regular visit. A good tactic is to visit the area during different times to understand the traffic better. Choose an area only if it feels comfortable.
Attending opening houses is a great strategy to see where your home stands compared to better or worse homes in the said area.
Many homeowners prefer buying the most affordable property in the neighbourhood, which gives them more room to build home value.
For instance, if you purchase the only home on the block without wooden floorings. If you can make that upgrade, it will add instant value to the residence.
The predominantly cash-intensive stages are down payment, closing costs, and move-in expenses, apart from any unforeseen situation. So, ensure you have enough cash in hand to avoid any unnecessary delay.
Once you have saved enough for closing costs and emergency funds, the immediate next step is to get qualified for a loan.
Additionally, getting a preapproval letter will show the seller that he is dealing with a serious buyer.
Lenders will verify your financial information to submit your loan application for preliminary underwriting. The process will take some time, which can be utilized to shortlist the homes in your budget.
Whether it’s the home or the loan, never deviate from your budget unless you’re sure about affording it. This is the best way to avoid financial stress in the later years.
Look out for first-time homebuyer programs, most of which combine low-interest-rate mortgages with other assistance like down payment and closing cost assistance. There may also be the option of getting or improving tax credit, which will, in turn, help you with funding.
That’s it from us on everything about buying vs. building a house!
Quite naturally, you’d now be asking- “which one is the better option?” And in our opinion, it’s challenging to pick one promptly. Each has its advantages and limitations. Moreover, not every person has the exact requirements.
What comes as a cost-effective alternative for you may not suit the other. So, it’s imperative to think long and hard before taking a call. And no matter which way you go, make sure you choose the best at every step!
With that, it’s time for us to say goodbye. Till next time, take care!
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