Is it cheaper to buy an empty land & build house yourself or buy an existing one?

Question

Is it cheaper to buy an empty land & build house yourself or buy an existing one assuming that you don't have any experience in building nor have contractor's license? Also you want to live in Southern California.

Answer 1

Its cheaper to purchase an existing house vs buying a lot and building. Lots of red tape, and building codes to follow, they sometimes stump a contractor, depending on the inspectors.
If you wish to do some work on the side, buy an older run down home, and remodel it, in your spare time. The older run down one, will be from $75,000.00 to $200,000.00 cheaper.
Don`t loose sight of the fact that real estate taxes are 1% of the purchase price per year. The amount you spend on the house after you buy it does not affect the amt. of taxes.

Answer 2

Depends. The answer is you have to research it. Some people are saying yes, some are saying no. It depends on what you build. If you are building a 2-3 bed ranch, 1500 sq.ft. you probably better off buying. If you're building a 4-5 bed, 3000 sq.ft two story, looking at building is an option. For people with no experience, you can talk to companies like UBuildit. There are others, but it the first to come to mind.

The reason for the difference is price to build. A modest ranch you may save a similar percentage, maybe 20-30%, but as you do the math, you save less because you are building less expensive home. For example, if you save 20%, a 100,000 ranch only saves you 20k. But two things, if you run into problems, go over schedule, materials go up during building, you can eat into those savings quickly, so your time spend, even if you contract everything out, is better spend working overtime. Now if you build bigger, then those savings go up. A 250k house, may save you 50k, so the margins aren't as tight, so if you get behind or have some expected expenses, it is easier to absorb.

The other thing to consider is region, the above numbers are reasonable for the mid-west. California, I don't know, and you may find, because the cost of housing is higher, building modest can work. But then again land is expensive, especially in California, so the land becomes a higher percentage of value of the home if it is modest, so building modest can still be a wash. I know here, in the mid-west, the people that build 1500 ranches, have to build in volume for it work. The people that build more expensive homes can build fewer homes, but do well, because the margins aren't as tight.

What you have to do is get a realistic budget. And research the surrounding market. This will tell you if the savings are worth the hassle. You may find the best option is buy an older house that suits your needs. Or you may find that building a 3000 sq.ft. house, by contracting all the labor and cutting the builder out, will work.

If you go with building, figure out what you can buy new on 25-30 fixed, then when you roll the construction loan into a traditional fixed rate mortgage, try to get 15-20 year fixed with the same payment as the 25-30 fixed. Plug the numbers into this calculator:

http://www.roypacmtg.com/amortize.htm

I used 200k at 7% for 30 year, and got $1330 payment paying 279K in interest. If your mortgage principle is 150k, by building, after you roll it into 15 year fixed, you get $1348 payment and pay only 92K in interest. Now that 50k is probably optimistic, but you can see a lot more saving than 50k. Then if you invest the $1300 payment in mutual funds for the remaining 15 years. Well, that's a lot of money. Like I said, those numbers are optimistic, but even if you make it more conservative, there is a lot of money there.

But above all, do the research first, budget, plan, schedule, financing. Don't just jump into it. And don't be under illusions that it isn't work, even if you contract everything out, it is a lot of work. There is a lot of planning just to get started. Another thing is that you will need money to start, 5k-10k. That is money that a construction loan won't cover.

Check out these sites:
http://www.ubuildit.com/
http://byoh.com/index.html

Good luck

Answer 3

If you have the capital available, the time and the will to complete the project, I would say it would be well worth buying a plot of land and building your own home on it. Even if you needed to borrow some money and hire various contractors it would still be a viable option for you. Property built in this way can in certain circumstances be completed at anything up to half the cost of purchasing established premises. However, if the cost of the land exceeds building costs by more than 100% you may just be breaking even

Answer 4

I have land in OK and plan to build one day. If you build today it will cost you less than if you build tomorrow. If you buy today it might cost you the same as it would tomorrow. You never know how the market is going to do one day up one day down. I have looked into building brick home, log home, mobile home, modular, and also straw built homes. And still have not made up my mind. But when ever I do it will be built by a professional.It is better to have it built right the first time. Good Luck

Answer 5

You've already answered your own question "you don't have the experience" You forgot another, money, time and Lot's of help. You need all of the above so, maybe you should forget it and buy instead.

It would be nice to build your own place, I've done this time and again but, on today's market, you can forget the "saving money" part, it can't be done.
I would buy a double wide or a modular today with the prices what they are, unless you have a huge bank account. I would put my money to better use in other areas to gain more money, investing in a home today can be very risky, you could loose much more than what you can make.

Answer 6

if you dont know what your doing dont do it it will cost you alot more in the long run just depends where you live and if your going to city hook up to sewer and water or if your going to have to make aseptic system and have a well drilled for water we was going to have a house build but it was cheaper to buy a house that was nice and that was already built the price for 5 acres of the buy its self was highter than buying a house with the land.

Answer 7

The location of the lot, amount of site work required to run utilities, grading, sewer lines/septic tank and earthquake related code would be a few solid reasons to look into purchasing a new home.

If you don't have any experience with contractors that is ok, not all of them are crooks and in most cases, they all do solid work.... its only a few that skew everyone's perspective of people who work in the building trades. Another added incentive is that housing has reached a point where interest rates have hit record lows.

Here in Florida, there are LOADS of homes for sale in BRAND NEW subdivisions that are struggling to find buyers. I have seen 2.65% interest rates for mortgages, $1 to move in with no closing fees, and even one property was advertised with all of the above and no payments for one year.... and these were in DESIRABLE areas to live outside of Tampa/Sarasota, FL!!!!

Answer 8

My home is 1yr old & built by a guy who's been in the business his whole life, but never tackled the whole house project all by himself. He ran into many problems, including running way over budget & lost money because it took 3 times as long to build as they thought. Also we are still finding small minor problems, largely due to inexperience. Hire a professional

Answer 9

If you have no experience in building, you definitely don't want to jump into building a home on your own, nor would I really suggest having one built unless you really have faith in your builder because they have to be be watched carefully. It might pay you to look for an existing home and have it thoroughly inspected. If money is an issue, check out foreclosures, or another tip is to always look for the plainest or smallest home in the best neighborhood - always easy to freshenup up a home with a little paint, shrubbery. Just make sure it's "bones" or structure (roof, foundation) and systems (heating, cooling, plumbing) are sound...that's where a good inspection is critical. Good luck!!

Answer 10

I have bought many pieces of vacant land and had houses built on them for much less than buying one with a house already built, and sold it for a bigger profit. I have a friend who is a custom home builder and gives me a good price on his labor. Good Luck