We are all aware of the large inventory of already built homes available on the market out there.
But let's say that none of those leftover McMansions or Foreclosed homes suit your needs. Isn't right now the perfect time to build a home. I would imagine that everything involving the process can be had for a discount from design to construction maybe with the exception of permitting.
Pros
Custom home to your design.
Brand new instead of used.
Discounted prices.
Cons
AEC team may not be financially sound.
Ignorant owner could get raked over the coals by low bid contractor.
Subpar quality.
Inability to get a loan.
Maintain separate residence while under construction.
I haven't thought about this alot, but initially it would appear that the only difference between building now and building four years ago would be the discounted prices and potentially the ability to get a loan. But if you have buyers who are qualified to purchase an existing home, they should be qualified as well for a construction loan. (Any mortgage brokers on this board?)
Uh, I don't know if you have been paying attention but over the past year or two people have lost a lot of their current equity and savings. Overall I think the number ran into the trillions. I'd have to go look that up again though. Banks are unwilling to lend as they used to and people are out of jobs or in fear of losing their jobs.
So yeah, it's a great time to build a new home, if you actually have money in the bank or under your matress. Otherwise, not so much.
"But if you have buyers who are qualified to purchase an existing home, they should be qualified as well for a construction loan"
I'm not a pro at this but I think the above statement is absolutely NOT true. I'm looking into fixing up an existing building as my primary residence, and I'm finding that I would need a large amount of liquid assets. I can't imagine that new construction would actually be easier. Well, you did say "should" so maybe you mean that even though this is not true, it should be the case.
With my limited experience, I think in general with the current system in place, it is actually easier to get funding for new construction as an investment (to sell for a profit), rather than new construction as your residence.
As a rule you should know that if an existing 20-30 year old home is on the market for $300,000 then to build it new today will cost you more than that, probably substantially depending on where you are located.
If you have the desire and means then think it is. I've been talking with a bank and the residential new construction loan money is available (still trying to figure out if it is personally feasible). Where you will capitalize today is on the material costs that have not been this low is years and the slight decrease in labor costs due to increased competition.
If your buying an older home it most likely will need a heck of alot of work to make it energy efficient, and the appliances most likely need to br replaced and well the floors if wood need to be sanded and sealed....and well the list goes on and one....but what you might also find is asbestos....lead paint.....and off gassing of the earth.
So I would say do a small house well planned and designed and engineered and you will end up ahead....even if it cost you a little more than getting into an old house.
I agree with you snook. But as I mentioned, I think its really tough getting funding for such an endeavor. You need a lot of liquid assets to even attempt this. Building a new home for myself is one of my goals as well, but I'm planning on renovating an existing property before that.
don't forget all of the energy credits available, plus, look to your local neighborhood organizations, if you have any, my organization has low interest loans available for up to 35k to do major repairs, i'm talking 5% or so.
Funding is the key. Loan-to-value ratios are much different than what was required only a year ago. As mentioned above, you'll need a lot of skin in the game.
Construction loans are much less attractive to a bank because there is nothing they can easily take - they don't want empty land and they don't want a half built home.
BUT if you can target a market with accuracy that isn't there, have funding, then that's another story (but if that were the case, someone else would be doing it too).
trace - when you say "BUT if you can target a market with accuracy that isn't there, have funding, then that's another story", you are talking about new construction as an investment, correct?
This is something I'm struggling with myself. I feel like the financial market is pretty much set for speculative new residential construction rather than new residential construction for owners. But what if it wasn't that way? What if the American housing market consisted of either buying existing properties or new construction for owners?
I think it is very market dependent and, most importantly, what your financing is. For those with tons of cash, they can swoop in and buy up things at pennies on the dollar and they can afford to wait, if necessary.
That's the big killer, is how long can you hang on? Like the saying goes: "Real estate will always make money, it just depends on how owns it when it does."
Dec 30, 09 8:05 pm ·
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Is Now the Right Time to Build a House?
We are all aware of the large inventory of already built homes available on the market out there.
But let's say that none of those leftover McMansions or Foreclosed homes suit your needs. Isn't right now the perfect time to build a home. I would imagine that everything involving the process can be had for a discount from design to construction maybe with the exception of permitting.
Pros
Custom home to your design.
Brand new instead of used.
Discounted prices.
Cons
AEC team may not be financially sound.
Ignorant owner could get raked over the coals by low bid contractor.
Subpar quality.
Inability to get a loan.
Maintain separate residence while under construction.
I haven't thought about this alot, but initially it would appear that the only difference between building now and building four years ago would be the discounted prices and potentially the ability to get a loan. But if you have buyers who are qualified to purchase an existing home, they should be qualified as well for a construction loan. (Any mortgage brokers on this board?)
Uh, I don't know if you have been paying attention but over the past year or two people have lost a lot of their current equity and savings. Overall I think the number ran into the trillions. I'd have to go look that up again though. Banks are unwilling to lend as they used to and people are out of jobs or in fear of losing their jobs.
So yeah, it's a great time to build a new home, if you actually have money in the bank or under your matress. Otherwise, not so much.
"But if you have buyers who are qualified to purchase an existing home, they should be qualified as well for a construction loan"
I'm not a pro at this but I think the above statement is absolutely NOT true. I'm looking into fixing up an existing building as my primary residence, and I'm finding that I would need a large amount of liquid assets. I can't imagine that new construction would actually be easier. Well, you did say "should" so maybe you mean that even though this is not true, it should be the case.
With my limited experience, I think in general with the current system in place, it is actually easier to get funding for new construction as an investment (to sell for a profit), rather than new construction as your residence.
As a rule you should know that if an existing 20-30 year old home is on the market for $300,000 then to build it new today will cost you more than that, probably substantially depending on where you are located.
If you have the desire and means then think it is. I've been talking with a bank and the residential new construction loan money is available (still trying to figure out if it is personally feasible). Where you will capitalize today is on the material costs that have not been this low is years and the slight decrease in labor costs due to increased competition.
If your buying an older home it most likely will need a heck of alot of work to make it energy efficient, and the appliances most likely need to br replaced and well the floors if wood need to be sanded and sealed....and well the list goes on and one....but what you might also find is asbestos....lead paint.....and off gassing of the earth.
So I would say do a small house well planned and designed and engineered and you will end up ahead....even if it cost you a little more than getting into an old house.
I agree with you snook. But as I mentioned, I think its really tough getting funding for such an endeavor. You need a lot of liquid assets to even attempt this. Building a new home for myself is one of my goals as well, but I'm planning on renovating an existing property before that.
don't forget all of the energy credits available, plus, look to your local neighborhood organizations, if you have any, my organization has low interest loans available for up to 35k to do major repairs, i'm talking 5% or so.
Funding is the key. Loan-to-value ratios are much different than what was required only a year ago. As mentioned above, you'll need a lot of skin in the game.
Construction loans are much less attractive to a bank because there is nothing they can easily take - they don't want empty land and they don't want a half built home.
BUT if you can target a market with accuracy that isn't there, have funding, then that's another story (but if that were the case, someone else would be doing it too).
trace - when you say "BUT if you can target a market with accuracy that isn't there, have funding, then that's another story", you are talking about new construction as an investment, correct?
This is something I'm struggling with myself. I feel like the financial market is pretty much set for speculative new residential construction rather than new residential construction for owners. But what if it wasn't that way? What if the American housing market consisted of either buying existing properties or new construction for owners?
just buy a building with 2-3 floors and the empty lot next to it....
houses are over-rated ;P
I think it is very market dependent and, most importantly, what your financing is. For those with tons of cash, they can swoop in and buy up things at pennies on the dollar and they can afford to wait, if necessary.
That's the big killer, is how long can you hang on? Like the saying goes: "Real estate will always make money, it just depends on how owns it when it does."
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