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New Home Construction Explained: Build, or Buy?

Building your own home is truly one of the great cornerstones of the American Dream. While it does take spending more money than purchasing an existing home, there are some strong advantages to building a space that’s truly and utterly yours.

Benefits of New Home Construction

What are the top benefits of building your own home instead of picking a house from the available inventory in your area? A few things:

  • Get exactly what you want, rather than settling for someone else’s design and functionality choices

  • If you have special circumstances, such as a need for greater accessibility, it’s easier to get the features you need in a custom build.

  • A custom build is a chance to show off your unique style.

If there are homes in a growing area that need work, sometimes a teardown and custom build makes more sense than planning to stay in the existing home.

Tips for New Home Construction

There’s a balance between getting what you want while also being mindful of zoning restrictions, your budget, and also your return on investment. That said, here’s a few tips for getting the most out of a new home build:

  • Build the biggest house you can.

  • Get comfortable with the numbers.

  • Get very familiar with the zoning allows for your area and follow it to the letter.

  • Be aware of the real cost of labor and materials; it’s much more than you think.

Becoming realistic about the time it’ll take to get the home built. Skilled contractors are very busy, and they prioritize consistent commercial projects above one-off projects. Managing multiple projects within a new home build is difficult; budget in a new construction project manager.

Do You Make Money From New Construction?

While many people think that a new home construction project will have a stronger return on investment, the reality is very difficult. Indeed, the costs involved with the new home build are much higher than meets the eye.

The Best Way for Investors to Make Money from New Home Construction

Partnering with a builder is the best way for investors to make money from new home construction. The builder has the ability to get deals on labor and materials that are closed off from the vast majority of investors.

Be very clear on the budget, with solid awareness of fixed costs and variable costs. Delays will happen, even with the best builders and teams working together. Don’t sweat the small stuff.

Getting Financing for New Builds

If you have a million dollars in the bank sitting around, maybe a new home construction loan isn’t high on your list. But for the rest of us, getting a loan is the first step to making your own home build a reality. Try to aim for putting down enough money to get the loan funded without breaking your budget.

The more money that you put towards the down payment, the less money you have towards the mortgage payments. However, there are some quirks to keep in mind with a new construction loan.

Unlike a traditional mortgage, new construction loan proceeds are not given as a lump sum. This is for security: we don’t want to watch the builder or contractor teams run off with the money. The money is released based on specific milestones. So the mortgage company would release some money to cover the framing and other tasks, but the builder would have to demonstrate proof that other tasks were completed fully before more money is released.

Pitfalls of New Home Builds

Can’t have the roses without the thorns. While new home builds are seen as the top way to get exactly the house of your dreams, there are several pitfalls to keep in mind:

  • Still more expensive than buying a home that’s already on the market

  • Way more decisions to make than meets the eye: picking out one faucet isn’t so bad, but having to pick out every single fixture in the house can get overwhelming

  • Supply chain issues can create delays that add more expenses, time, and frustration

  • Be extremely comfortable with managing a lot more details than the traditional home purchasing process

Pitfalls are important cautions, but it’s possible to work around these pitfalls and meet your goals. Above all, getting clear about what you want for a new home build and building a plan is the most important piece of the puzzle.

So, Should You Build, or Buy?

Ultimately no guide can tell you what to do. We lay out the case for the new home build, but it’s perfectly valid to purchase a house from the existing inventory you have. Given that motivated sellers come into a marketplace every day, it is very possible to get a house that is not only less than the market rate, but quicker to settle into it.

If you have the ability to stay where you are while a home is built, that will help when waiting for the project. But if you need to move soon, buying a house is not only cheaper but much quicker.

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