Build Your Own Home

Building a House for Cheap

Yippe! Yay for Friday!

I got an email from a reader friend, Laure, about building a house VS buying a house.

Reminder: I am not a realtor, nor am I a real estate professional. However, in the last 5 years…

*We bought a town house in 2007 that we currently own and rent out.

*We bought, built, then walked away from bigger house in 2009, losing all the deposits we put down on it. (For the background story on building and walking away from our home click HERE.)*Fought for/waited for 12 months for our new home that we just moved into Dec 1. It was a messy short sale, and it was a screamin' deal. (For my take on how to buy a short sale click HERE.)

So, while I'm no professional, I have been around the block a few times.

Here's Laure's question:

Q: Would you ever build a house again? What are some fees or expenses that could come up during the process outside of the price of the home? – Laure

Here's my answer:

First of all, it's been a few years since we've built, so things have probably changed. My number one recommendation is to find a realtor that KNOWS THEIR STUFF and sit down and talk with them about it. If they are honest and you really trust them, they will know what's best for you in your individual market. Trust me, they get a commission whether you buy or build, so they will be happy to answer your questions. *If you are in Utah and need a good realtor, Craig Collette was ours. I have never known anyone who was more savvy with the market and home-buying and selling. He's seriously a phenomenon. Click HERE for his info.

But here are a few quick thoughts I had on buying vs building based on my personal experiences:

We started house-hunting for 18 months before finding the house we are in now. We quickly learned that to build a house like the one we ended up buying would have cost us more money...which is why we bought rather than built. The house we bought was a short sale on the brink of foreclosure, so we got a screaming deal on it. HOWEVER…in the 18 months of looking it's the only house we really really liked. If we hadn't found this one then maybe my answer would be different for you.

When we built, we had to have more cash up-front…but it was more spread out through the entire process. You have to pay construction deposits along the way, in addition to a down payment, realtor fees, etc. It's nice because it spread out the payments so it wasn't one huge chunk at the end, but it still required more cash along the way. This may be different now, but we had to constantly be saving up our cash for deposits on things. Which, just for the record, are non-refundable. That's essentially the money we lost when we decided not to buy the house. You also have to remember that you aren't buying just the house – you are also buying the land. To build a house could cost $2-$300, 000, but then the land could be another $100, 000 on top of it! Every area is different, but just remember that lot size and location makes a huge difference in the final cost of your home.

With our townhouse we were able to pick our colors, carpet, and customize a few things, but we weren't paying for a custom home because it was part of a development; not a custom home. The builder built 150 townhouse units so everything was cheaper than buying a single home. This was the perfect option for us as newlyweds. There are tons of neighborhoods like this today. Many of them are called “Tract homes” (if they are single-family homes) or “developments” (if they are townhouses or condos). It's where they are all basically the same layout and exterior, but you can customize what you'd like – paying PER customization to get what you want. These are typically much cheaper than a fully custom home because, like buying bulk, they are doing lots of homes at once and can get a better deal on everything.

Our town home cost $205K, which was what we could afford as newlyweds. In that situation and price range it was perfect for us to get a brand new home and pick out all the specs. I have found that smaller homes like condos and townhomes seem to still be good deals to build, especially in this economy. For example, we could only sell our townhouse for probably $180K (which is why we are renting). However, because the builder would rather take SOMETHING than NOTHING, you can build a brand new townhome in our development for around the same price. It's a no brainer in our neighborhood – why buy used, when you can build brand new for the same (or even similar) price??

For this new house we are in, however, it was wasn't as good of a deal for us to “build” (even a tract home) because we found our home that had tons of equity in it, and were able to find a previously very expensive home that was now a short-sale, which we bought for pennies on the dollar. We found that getting into the higher price-range of houses ($375-$500K+) we got more bang for our buck by buying rather than building.

The benefits of building a house is that you get exactly what you want. YOU pick the colors, carpet, layout of the house, everything. You might pay more, but that could be worth it to you to get exactly what you want. If you plan to be in the house for a long, long time, that is a great option for you. If you plan to be in a house only for just a few years, I don't know if I would recommend building. In the Utah market, anyway, brand new custom homes are more expensive (even townhouses and tract homes) – unless they go to short sale or foreclosure, or unless the builder is in a tough spot and is dramatically reducing prices (like in our town home complex). But please remember…it is NOT WORTH IT to risk short-sale or foreclosure! Don't do that to yourself or your family! If you have a chance of not being able to pay your mortgage after only a few months of living in a home, you have no business buying a home in the first place. Don't over-stretch yourself, it's not worth it!

The benefits of buying a house is that you often times have a greater chance of walking in with equity. For example, our house appraised at $100, 000 more than we bought it for. That would be next to impossible if you were building a house, from my understanding.

For us, it would probably be determined more by the area than anything. If you look for 1 year or more in the areas where you want to live and there is absolutely nothing in your price range that you want to commit to, don't settle! Building could be a great option. For us, we wouldn't have been able to afford to build a home in the neighborhood we are in now, but we knew we really wanted to live here – so building wasn't an option for us.