Many billionaires and millionaires credit their success in accumulating wealth from investing in real estate. Unlike other expensive purchases like a vehicle or a piece of technology, over time, real estate value appreciates rather than depreciates with continued use. Compared to the stock market, it offers high returns but with less volatility and, therefore, risks.
Moreover, there are amazing tax breaks available to people who invest their money in real estate properties.
Buying Versus Building: Which One Costs More?
But, one question in the mind of an inventor is probably whether they should buy an existing real estate property, or build a new one.
The upfront cost of building a house is significantly higher than the price of a pre-loved home. You not only have to procure materials and labour to construct the new property; you also have to acquire a piece of land for sale around a quiet neighbourhood or a holiday destination since these places tend to receive a lot of interest from potential buyers or renters.
Then, there is the cost that comes with hiring an architect and an engineer to draw the blueprint of the house, the materials needed to make the plans a reality, and the construction crew to build it. There are also permits, inspections, and other fees that need to be paid before the construction officially begins.
However, a huge amount of money is still being spent on existing real estate properties. An older house is prone to wear and tear either because the previous owner made no effort to care for it or simply due to time.
A buyer, therefore, should always set aside a portion of their budget toward making repairs and replacements in their second-hand home. Some maintenance work you have to do cost a lot of money. You might find yourself spending thousands of dollars to re-roof the home — something that you would not have to do for at least 25 years if you built the real estate property from the ground up.
Which One Gives the Best Bang for the Buck?
The main concern is whether building a house is worth the investment. Would you get more for the house that you spend a fortune constructing or are you better off buying an existing real estate property?
One potential drawback in building your own house is choosing where to build it. An up-and-coming neighborhood does not always turn out to be a popular choice. There is a chance that it will become a ghost town or become an undesirable location which will make the property far more difficult to rent out or to sell in the future. It will also lower the price of the house.
In addition, design trends that may be popular right now will become passe in the future. A feature that has gone out of style makes the house look dated and will negate any appreciation that the property accumulated over the years. That said, if there are plans to sell the house at some point, stick with traditional and classic designs.
For comparison, with an existing home, there is a history that you can review. The neighbourhood has been around for quite some time and, therefore, has a record of how many houses are being sold. There is a lot less risk knowing that the property is located in a good area where the houses only appreciate in value over time.
The resale value of an existing house is lower compared to a newly-built home, especially if the latter is at an ideal location.
Moreover, in most cases, energy efficiency is integrated into the design of a new home which will enable the household to lower its utility bills and save money in the long run. Star Energy estimates that homes built after the year 2000 are up to 20% more energy efficient compared to properties built prior. It may not seem a lot, but it accumulates and makes up for the total cost of building a new house.
On Australia’s Housing Shortage
Building a house from the ground up will help the local housing market respond to the necessity for more property. Australia has a problem: while the population continues to go up, the number of new properties being built has completely stalled.
An undersupply of available real estate property will drive the prices of houses up which will make it impossible for an adult who earns an average income unable to afford a home. The Reserve Bank of Australia foresees a shortage of housing in the near future if trends do not change.
At the end of the day, there is no right answer. Whether you want to take a risk and build your own home or play it safe by buying an existing property with an affordable price tag is up to you.