To Build New or to Buy an Existing Property? That is the Question. by Chris Burch
WaterColor Phase III
Whether you are considering relocating to the area, adding to your real estate portfolio, or becoming a first-time buyer of a piece of paradise on the Emerald Coast, there are four main factors for determining whether to build or to buy existing.
1. Location Location often dictates whether you can buy an existing property or build a new one, so knowing your priorities is essential. For example, important options to consider when moving to 30A include: size and density of surrounding lots and houses, Gulf front views, proximity to a heavy rental community, purchasing within a gated community, and finally, buying near 30A, US 98, or a beach access. Once you have your location criteria, the next question is, Should I to build on a vacant lot, buy a tear-down, renovate, or buy as-is with no planned improvements?
2. Price First is the lot/raw land price. Then, once you have Chris Burch evaluated the price of the vacant land (or tear down home), you must combine all estimated construction expenses including designing & building as well as furnishing costs, which gives you your grand total. Be sure to include items such as realtor commission, lender fees, interest carry cost (if applicable), architectural, engineering, interior design, water and sewer impact fees, builders risk insurance, etc., and finally, hard construction costs. After calculating this total projected cost, you should run a sanity check to see how it measures up against comparable current market inventory. To do this, compare the current market price per square foot with your “all in” cost per square foot of doing a lot purchase and design build. Ideally, the goal is to have some instant equity when the home is completed. Your real estate agent, architect, or builder should be able to assist in this exercise to see how a new construction project should fare against other current existing properties on the market.
12 | Spring 2017
Lastly, do not forget the current construction cost. New construction can vary greatly per square foot, but is much more definable when dealing with a good set of construction documents and owner allowances. Therefore, you must keep in mind that the cost of doing a renovation of an existing home is much more difficult to predict and the cost per square foot is often considerably more expensive to build than it is in new construction. Why? Well, a new build is only built once. Meanwhile, a renovation must first be destroyed/demoed before it is built back. In addition, when taking on a major renovation all furnishings should be removed and stored offsite throughout the construction process. This cost should be factored in as it not only protects the furnishings from damage or loss, but will make it more efficient for your builder and save time.
CURRENT MARKET TRENDS to consider: New construction costs are currently more expensive now than in the last few years due mostly to the supply and demand curve. Labor shortages have contributed to the increase in subcontractor pricing. Material prices fluctuate, but many costs (including materials, permitting, drainage requirements, and other hard costs) have slowly been on the rise in the past few years. These cost increases ultimately get passed through to the end user.