Is it better to buy an existing home or build a brand new one today?
The dynamics of the real estate market have changed. Many are now questioning whether buying old homes makes any sense at all any more. So what does the data say? Is it now wiser and more profitable to build your own homes? If so how can home buyers and real estate investors overcome some of the common quirks of home building of the past?
The New Real Estate Landscape
The National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index rose again in August 2015 to its highest in 9 years. This shows professional home builders are confident in the market and putting up new homes.
New home sales are up too; rising 25.8% year over year to July 2015. And the National Association of Realtors has often repeated the message that there is a severe shortage of new homes being built. That has constrained inventory, and pushed up prices of existing homes. The national median home price rose by $20,000 in the second quarter of 2015 to $230,000. While interests have remained low, there is incredible pressure on the Fed to raise them in order to divert a crisis. Affordability has already been crumbling to just 63% those earning the median national income of $65,800 being able to afford a home.
For those trending toward building homes versus buying existing an NAHB survey shows that acquisition, development, and construction financing has been easing for the last 7 years.
Old vs. New
The bottom line is that it is now clearly cheaper for home buyers and investors to build their own properties instead of buying existing ones.
Buying a new finished home in an eerie community where everything looks the same, or taking on a new construction condo may be far more expensive than existing homes. But in general building can be done at a fraction of the cost. This is because builders may only fork out about 60% of the actual price in construction, but then have to cover massive organizational, marketing, sales, and other costs. Then they have to tack their profit on top.
So you can build your own home for less, or pay the same amount and get a lot more house for the money. Just as important; you get a brand new house that can last far longer. In contrast it is almost insane to take out a 30 year mortgage (or the equivalent in cash) for a property that won’t last that long. In fact, the house ‘deals’ out there are often on dilapidated foreclosure homes that are in dire need of repair and major improvements. Some will cost buyers multiple times the purchase price to rectify or tear down. And you never know what you are going to get with an old home. Standard home inspections may pick up on crumbling foundations, failing roofs, and even termite infestations. They normally won’t include testing for meth labs, grow operations, and lethal Chinese drywall. Who wants to risk their family or a lawsuit by dealing with that?
This debate is especially a concern for real estate investors. While some are betting on overpriced existing and run down properties with a speculative approach, more and more are realizing that whether it comes to flipping houses or holding income producing single family homes or small multifamily properties, building is just more profitable. In many cases it is the only way to ensure profitability.
The Challenges of Building Homes
Obviously if building makes so much more sense economically everyone would be doing it, unless there were some quirks. Or at least some perceived challenges. It’s true. It can be a little more intensive building a home rather than just buying one of the shelf. It is going to take some hours to choose a floor plan, a lot, decide on the new furnishings, etc. Of course if that means literally saving a couple hundred thousand dollars over the lifetime of owning a home, most would consider it worth it. It’ll be the most money you make in an hour in your life!
Then there is the financing. It is becoming increasingly easier to get financing for lots and construction. But it can still be a challenge depending on how many stages you need financing in, and how often contractors need to get paid, etc. However, there are options. Even modest homebuyers should be able to find something which fits their budget, or who can at least build for current needs, and expand later to complete their dream home vision.
The Mesocore solution offers a number of unique advantages to both regular home buyers and real estate investors. Mesocore sustainable green homes are strong, affordable, and are fast to put up. They are hyper-efficient, and can even save money by operating off grid for water and power. That lowers living and homeownership, and building costs. For real estate investors is means eco-friendly homes and better spreads on rental properties which can be configure for single or multifamily residences.
For those debating the finance side the affordability of Mesocore homes creates potential for funding them via crowdfunding, peer to peer lending, or by tapping IRAs or 401ks and stopping the bleed that the stock market is causing right now.
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