Buying vs. Building a House

There are but only a few things more precious than your home!

The excitement and joy become boundless when it’s time to get one. However, letting your emotions cloud your judgement may not be the wisest thing to do—especially with an investment this big at stake.

At this stage, the first question to answer is whether to buy or build the house of your dreams. There are many factors to consider.

So, we’ve compiled a guide featuring every detail to help you make the best decision. After all, it’s not every day that you set out to own a home.

• Is it cheaper to build or buy a home?
• Building A Home vs. Median House Values
• Advantages And Disadvantages: A Clear Picture
• Types Of Home Builds
• Benefits of building a home
• Disadvantages of building a home
• Benefits of buying a home
• Disadvantages of buying a home
• Tips for Building a Home
• Tips for buying a home
• Conclusion

Is It Cheaper To Build Or Buy A Home?

Median Lot Price

Cutting straight to the chase, buying vs. building a new house mainly depends on the cost. Honestly, it’s not an easy answer 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. To get an idea, we used some help from the annual (2020) State of the Land Report of the Urban Development Institute of Australia for median costs and lot sizes.

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 relatively high at around $322,000.

But there’s more to the story. While constructing a home doesn’t directly involve paying stamp duty, you still need to pay it for many lands.

Many states exempt first-time buyers from paying stamp duty, but this legislation varies from state to state. As a result, predicting the exact cost of building a home becomes more difficult.

Lower Range Cost

Another thing to consider when building a home or house buying is the lower-range cost. Again, the prices will differ according to the type of the building and location. To make things slightly less complicated, we returned 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-story, and double-story homes, but we didn’t differentiate for simplicity.

Unlike the median lot price rankings, Victoria had the most expensive lower range cost, $423,808. Similarly, South Australia emerged as the cheapest state, with about $314,736. In this case, the national average is $381,697.

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, etc.

Likewise, you can calculate the final price of constructing a home using these rough estimations by adding the median lot cost, low range cost, and stamp duty. Sydney secures the top spot with a total cost of $867,864, saving you the hassle.

It’s followed by Sydney, with prices near $844,594. 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

Building A Home vs. Median House Values

So far, we have focused on estimating the construction costs (minus the other details) across the country. It’s time to examine the median sales price to see which option will prove 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. 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.

Advantages And Disadvantages: A Clear Picture

Not to sound contradictory, but it’s not unusual for homeowners to ignore the cost factor, mainly because of the advantages associated with each option. Thus, assessing the pros and cons becomes crucial, and we will do just that in the following sections.

Types Of Home Builds

There are three main types of homes to consider while building a home, namely:

1. Manufactured Homes

Manufactured homes are usually built-in facilities that are transported to the location in one piece. Once there, they’re placed on a frame that can be picked up for shifting purposes. They don’t cost a fortune to build.

2. Modular Homes

While built like a manufactured home, modular homes are transported to the site in multiple pieces and assembled on the spot. They are placed on a permanent foundation and can’t be transported to other places.

3. Site-Built Homes

Also known as stick-built homes, these structures are built on the location or existing property and are generally the most expensive among the three.

Advantages of building a home

1. Customisation

Customisation is undoubtedly one of the most significant advantages when you build a house. When constructing a house from scratch, you typically have the opportunity to 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 has a reputation for being diverse because of the variety of homes and features they offer. For instance, if you want a ten-pin bowling alley in the basement (and have the funds to do so), go ahead!

On the contrary, finding a ready-made house with all your preferred features can be a rather time-consuming affair. You can 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.

2. Low Competition

According to a recent survey, ready-made homes were on the market for less than a month. Finding a suitable house within your budget can be highly stressful with low retention time. But if you already have the land, there’s virtually no competition or rush to get the home of your dreams.

3. First Home Owners Grant

As the name suggests, the First Home Owners Grant (FHOG) incentivises 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 money for a deposit.

Image Credit: Peoples Choice

While your real estate agent will assist you with the exact procedure, remember 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 receive the funds.

4. Stamp Duty

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. Buying a home costs you more than twice the stamp duty than building one.

5. Energy Efficiency

Energy efficiency plays a significant role in personalising a home. Thus, choosing energy-efficient options can save thousands of dollars on power consumption.

According to a report by Ergon Energy, Australians spend an average of $1,500 per year on electricity and gas bills. Most of this money goes towards air conditioning, heating, water, powering appliances, and other electrical systems.

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.

The most common methods employed nationwide 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 slowly gaining popularity is using solar panels, a sure-shot way to make long-term savings.

Solar panels can cost anywhere between $2,500 and $12,000 depending on energy consumption.

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. However, the savings after the recoup period can well be in the tens of thousands for the next two or three decades, which is the average life of a home loan. Beyond that, solar panels can increase the market value of your home.

Disadvantages of building a home

Despite having considerable advantages, home building is unfortunately not free from its cons. Among the most noteworthy disadvantages are:

1. Time

Building a standard home can take anywhere between six months and a year unless you have some significant requirements (like the ten-pin bowling alley). And that’s not all.

You may not 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 wants to stay in with the hassle of painting, fixture installation, etc. 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 completing the finances and paperwork.

2. Construction Loan

Much like home loans, construction loans are a specific type of funding designed to assist in the construction of homes. Although construction loans are almost instant for home building, they sadly don’t function as generally as home loans. Perhaps the most significant negative is higher interest rates, correlating to long-term or costly repayment.

In addition, many construction loans may require higher fees and larger deposits, and securing one can require a lot of paperwork, thereby delaying the construction.

3. Uncontrollable Factors

No matter how much time you dedicate to maintaining a constant vigil at the construction site, certain factors will still be 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 expenses may crop up suddenly, especially if you weren’t careful during planning.

Buildrite takes the time to ensure everything is planned out, but if you have chosen another builder, this needs to be considered.

4. Location Restriction

We’ve only talked about building a home on a vacant lot of land until now. You won’t likely 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.

5. Decision Making

While deciding on every little detail may seem like an exciting prospect, it may quickly become a headache, especially if there’s no expert opinion handy. Remember, your builder can suggest options, but the final call will be yours. Plus, hiring a home designer will invariably be an extra financial burden.

6. Minimised Negotiation

The scope of negotiating for constructing a home is much 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.

Advantages of buying a home

1. Convenience

In the age of technology and the internet, home buying can be accomplished from the convenience of a mobile device. With so many home-buying websites at your disposal, browsing the properties is as easy as watching a video on YouTube.

Especially during the pandemic, when the whole world is locked inside, you can buy a home without seeing it physically.

In addition, to keep up with the competition, some lenders boast of processing loan applications in hours.

Homebuyers can move into their new house only a week after completing the formalities. Of course, this is a hypothetical situation, but it can still be faster than building a home from the ground up.

2. Location

As the country’s population rises, so is the number of houses being built. Blocks of land are being snatched up faster than ever for construction. Therefore, buying an existing house in your desired location and with all the necessary institutions in the vicinity is less tiring now.

3. Finances

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 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 for the latter.

4. Get What You Pay For

The talks of personalisation 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 when buying an existing home that you know exactly what you’re getting. We’d suggest hiring a property inspector before purchasing or reconsidering a new construction for best results.

Disadvantages of buying a home

Let’s take a quick look at some of the hassles of buying a home.

1. Wear And Tear

Buying a house doesn’t necessarily mean buying a new one. You may also have opted for a pre-owned, perfectly fine residence. However, it’s almost inevitable that such properties will have some wear and tear, which will ultimately be your responsibility to look after.

Moreover, maintenance will only increase over the years. 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 significantly strain 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 promptly.

2. Higher Government Fees

Besides the exorbitant stamp duty cost, first-time homeowners will receive less financial assistance from authorities and the government if they don’t buy new homes.

For example, many states have shifted the FHOG only to buy previously unowned homes.

3. Unavailable Features

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 becomes restricted.

Even basic features like a swimming pool or two-car garage may be challenging in your location or budget.

Tips For Building A Home

1. Set Aside Ample Time

Building a home is a long-term commitment.

The early stages of designing won’t put you in a fix or take up much time, which 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.

2. Hire The Right People

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 most significant factor determining the journey is the relationship the two parties share, especially those without construction or architecture experience.

Thus, we recommend investing a lot of time in gathering every bit of information about your preferred builder. List down all the questions you think they should answer in the job context. Also, look for referrals or previous clients and talk to them about their experience.

Since it requires a clear communication stream between the homeowner and the builder, make sure you go for the one worthy of your trust.

3. Plan Out Everything In Advance

Do not introduce last-minute changes to the design unless necessary, as this can also disrupt the surrounding setup.

For example, if you suddenly decide to paint the kitchen wall red instead of yellow, you may also need to change the colour of the kitchen table. This will add to the trouble of an extended timeline and additional costs.

Tips For Buying A Home

1. Research The Neighbourhood

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 regular visit places. A good tactic is to visit the area during different times to understand the traffic better. Choose an area only if it feels comfortable.

2. Attend Open Houses

Attending opening houses is an excellent strategy for comparing your home to other homes in the 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.

3. Start Saving Early

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 to avoid unnecessary delays.

4. Get Loan Approved

Once you have saved enough for closing costs and emergency funds, the immediate next step is to qualify 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 before submitting your loan application for preliminary underwriting. This process will take some time, which you can use to shortlist the homes in your budget.

5. Stick To 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.

6. Look For Assistance Programs

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 credits, which will, in turn, help you with funding.

Soo... Should you build or buy a house?

That’s it from us on everything about buying vs. building a house!

Naturally, you’d now ask, "Which 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 is a cost-effective alternative for one person may not suit another. So, thinking long and hard before taking a call is imperative. 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!