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17 Dec 2014

TO BUY OR BUILD A HOME

We drove back home from East London on Sunday. Whilst there, one of my new friends insisted on me driving around Gonubie Beach to see where she lives. I saw East London in a new light. It is such a beautiful town. I am now back home to give my two cents worth on why I would choose to buy or build a home of my own.
Gonubie, East London, South Africa
Most readers of this blog lead or strive to lead debt free lives. It makes me smile just thinking about it. As we all know, a home is the biggest debt for most of us. Most readers believe in building their own homes without borrowing from the bank. That is the reason I love associating myself with you guys. I know this to be a fact because of the debate we had with a number of people who read this blog. (PS. if you are from outside SA, it is a norm to build one's customised home with a mortgage here in SA).

Summarised, this is what transpired from the debate:
  • Even those of us who have never built their homes before seem to plan to do so in future without taking on any debt;
  • Those who have built their homes with little or no debt before would take the same route again;
  • Most were fond of the fact that building one's own home enables one to get a more custom structure;
  • Everyone who has built their home stated that they saved a lot of money doing so compared to buying an existing home using a homeloan;
  • We all aknowledged the higher stress levels that come with building compared to buying an existing home;
  • Most agreed that the building project requires intense management as most builders prove to be unreliable. A lot of facts accompanied this notion. Sticking to payment interval agreements by the home owner and the builder was the major problematic area in the building project;
  • This was followed by the time lags from paying for building material and it being delivered at the building site;
  • One person raised the building quality concern emanating from the fact that the bank is not involved to ensure good workmanship and high standards of material used;
  • Even though those who built before did not fully enjoy the process, they found the end product to be fulfilling;
  • The obvious one was that, moving into a fully paid house means that you owe no one for it. It is very rare to have a house you are not paying for.
I am undoubtedly inspired by hard work and focus on being debt free by these amazing friends. I know this debate will go on forever. In the meantime, let me give my personal preference on whether to buy or build a home.

I will most likely have a commercial property development project in 2016. However, I don't anticipate ever having a construction project for my own home. I have to state though that I don't feel as strong about this as I did before this eye opening debate. My reasons for being pro-buying vary from those of psychological to those of financial nature.

Design and Architecture
As a "designer", I find my design preferences change by the hour. Even if I were to design my dream home, I would most likely wish to change it before it is even ready for occupation. Some people take two years to complete their home building projects. By that time I would have changed my mind about the plan already. That does not make it easier to buy an existing house but it cancels the "custom house" argument for me. I also think I put more thought in other aspects of the home like location and prepare my mind to adjust to whatever I get. Which some would view as more stressful than building.

In reality, though very similar to each other,  most modern homes do look nice. Going completely different is costly in financially, on time, design fees, etc. A lot of people I know choose existing house plans from their architects and developers which, once more, discounts the uniqueness and custom part of the structure. It is important to mention that the features of newer homes are much nicer and pleasant to the eye.

Cost
I used to dispute the fact that building a new property can cost significantly lower than buying an existing one. Research states otherwise. However, most people who build without the bank assistance seem to manage to keep the costs very low. The challenge would be omission of other costs that we usually leave out when quantifying the details of the project. Some of those are the cost of alternative accommodation, daily travel to and from the site, the stress, the family conflicts that are a direct or indirect result of the project, getting something different to what you have imagined, underestimating the project duration and costs, the value of one's time, etc. Even with these factored, I am now convinced that it does cost less for most people to build in this way than to buy homes.

If I were to choose a single factor that makes it difficult for me to choose building, it would be the time cost. I am too impatient to wait for a year or two for the home project. When one builds cash, they most likely run out of cash at some point during the project life cycle and add to the waiting time. This can result in months or even years of delay in the project. One may have achieved some growth in the value of the existing home in those months or years if they bought an existing house. Two years of inflation plus a splash of paint can yield amazing grown in the property value. If you bought right, you would be in a position to sell it at a good profit. Existing homes can offer huge discounts when one is patient enough to search for the right property with a right price tag.

Quality
Very low construction costs usually result in inferior workmanship. Most often than not we get what we paid for. Less experienced builders tend to charge lower fees than the highly recommended ones. Whatever you estimate to be your costs, allow some fifteen or higher percentage for contingencies.

Other Benefits
Buying is definitely less stressful. Chances of getting a deviation from what you ordered are very slim. Most older homes are closer to established communities with benefits like great schools and other amenities. One can easily predict or research the challenges that older communities present. Building in well established communities would be very expensive because of the higher land cost.

Finally, if I were to build, I would probably use a homeloan. I would want to be cushioned by the bank rules to be able to manage the project effectively. I would also prefer to carry whatever risk that comes with the project with the financial service provider. The bank has an agreement with the constructor and owns the project. And YES, I am also a believer in the power of leverage. But I also prefer to have my primary residence to be a fully paid property.

Having stated my preference though, the debate did change my thinking around the "to buy or to build a home" debate. I can now consider the cash building idea. What are your views on this?

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