Purchasing new property is always exciting, but it’s also a decision that requires a lot of thought. Should you buy a new home from a home building company, a lot for a custom home build, or an older home potentially requiring renovations? There are so many options to choose from. Let’s go over the pros and cons of each so you can make an informed decision.
Types of builds
Before making the decision to build or buy, let’s go over all of the options for building a home.
- House plans. Some companies like Drummond House Plans sell premade floor and house plans. They’re often cheaper than paying an architect to draft plans from scratch.
- Prefab home. If you’re looking for a green building option, modular or prefab homes are great. Companies offer a selection of home designs to choose from and build each house in a factory before transporting it to the work site for completion.
- Hiring a contractor. If you have already have a lot, you can get a house designed by an architect and hire a contractor to build it. Some construction companies also offer house plans; however, we don’t recommend going that route because they own the plans.
- Self-build. If you have the right licences, you can attempt to build your house yourself. Though, you’ll need an architect to draft plans that comply with the Building Code.
- Buying from a promoter. You can buy a lot and a house in a new development. Once the build is complete, you then take possession of the house.
Location, location, location!
Finding lots for sale in or near metropolitan areas is becoming increasingly difficult. In most cases, new developments are further and further away from major cities like Toronto or Montreal due to a lack of space. So, if you plan on moving to a home on an empty new lot, get ready for a long commute!
If you plan on buying a property that’s part of a new development, you’ll need to keep in mind that all services – stores, public transportation, sanitation services, etc. – will take a while to be built and established. For example, the forest behind your new home might become a public park or new elementary school, so keep an eye on the development plans!
Though, there are some upsides to buying a property that’s part of a development. For example, if you’re one of the first buyers, you get dibs on which lot you’d like. That said, you also have no idea who your neighbours will be until the day they move in.
For homes that are already built, you can specify location when browsing listings. You’ll also be able to ask the real estate agent or current homeowner what the area is like. For example, if you’ve got a family with a few kids, then a neighbourhood filled with retirees or empty nesters likely won’t be the right fit. You also won’t have to wait for public services or accommodations to be built as they’re already there! However, if you have a specific neighbourhood in mind, you’ll only be able to choose from what’s on the market and won’t necessarily have much choice on where the homes are located.
What’s more profitable?
The greatest advantage to building your home from the ground up is that it can look any which way you’d like. However, the beautiful decors seen on home improvement shows can easily make your bills pile up, often times easily going above a 6-figure price tag. When building a new house, it’s quite common not to realize how quickly costs can rise up. That’s why it’s important to properly plan out your budget and stick to it! Sticking to your budget will actually allow you to save on costs compared to renovating or up-keeping an older home. Note that your budget should also account for unforeseen costs.
A self-build will allow you to save up to 30% on costs, in optimal situations. Though, self-builds require detailed knowledge on construction and renovation, and great time management & planning skills. Of course, all your planning would need to be set up according to a realistic time frame too. Also, if you don’t hire a general contractor, you’ll be the one managing every tradesman and sub-contractor you hire. Being your own general contractor is sure to save you on costs, but probably not on time! You’ll also need to make sure that finishing touches are practically impeccable. Don’t try to save on building (i.e. tradesmen/contractor) costs, but end up with a poorly finished product likely to negatively impact your home’s resale value. When the time comes to sell your home, you might even have a hard time selling because buyers tend to shy away from self-builds.
Budget-wise, it’s much simpler to purchase a pre-existing home. All you’ll need to do is establish your budget and then check out properties that interest you. However, keep in mind that older homes might require minor renovations in the short term, which will need to be considered in your budget. For instance, you’ll need to assess the roofing‘s condition, the windows‘ state,if the siding is still intact, whether the foundation’s structural integrity is still good, the house’s HVAC system‘s effectiveness, etc. Depending on the layout inside the home, you might also want to relocate the kitchen or bathroom, or make a room a little bigger.
What’s riskier? Buying or Building?
If you choose buy from a promoter, purchase a prefab home or hire a general contractor, you’ll need to make sure they’re all qualified sources. How will you know that the contracting companies are qualified for the job, though? Verification is a long, tedious process, but it needs to be done! You’ll need to check their license validity, their permits, their legal records, speak to previous clients, check out projects they’ve completed in the past and much more! Feel free to ask potential contractors questions when meeting with them. It’s best to be well prepared than to get blind sided by a quack.
When buying a new home, you can be eligible to a new home warranty. Just be sure that the prefab home manufacturer or contractor are properly accredited so you can benefit from the New Home Warranties Plan. To be eligible, you’ll also need a signed warranty agreement provided by the contractor. This agreement will keep you covered if ever there are any faulty design elements, hidden defects, delivery delays, etc.. However, this only applies to the actual building. Landscaping work is not covered.
Note that opting for a self-build nullifies your ability to be covered by the New Home Warranty Plan. Why? Because you become the project manager and aren’t an accredited contractor. Self-builds comprise major risks seeing as a general contractor knows what standards to abide by, whereas you’ll be working with sub-contractors and won’t be able to properly assess if the work they do is up to standard. You also won’t want to notice years down the road that your French drain was poorly installed and end up with foundation problems. Not only will the contractors you work with need to have the proper licenses, they’ll need to be attentive to detail and respect Building Code rules & regulations.
The risks associated to buying an existing, older home aren’t as great, but they can easily become costly. When buying a home, you’re not covered for hidden defects, meaning you’re better off getting the house inspected before putting in an offer. An inspection costs about $500, making it well worth it. Be sure to hire an inspector with civil liability insurance to be protected from any of their mistakes or omissions. Also, check that they’re a member of a law abiding & relevant professional association.
Does Financing Differ From One Option to Another?
Financing a new build or a self-build is different from getting mortgage to purchase a new home. When getting a home built, you’ll need to work with your financial institution throughout the entire building process. The bank will need to approve your future home’s plans from the get-go. Plus, you’ll need to provide them with a cost estimate and a timetable for the work being done, quotes from suppliers and sub-contractors, your building permit, and much more.
Once that’s done, they’ll approve (if all is well) and provide you with a Progress Draw Mortgage. Funds will be advanced as your house is being built. Though, they’ll only advance sums after routine work-site inspections are done by a mandated inspector. With each disbursement, a holdback is required by law (typically 15%). It’s used as a guarantee against builders’ and suppliers’ liens. The bank will, however, provide it to you once the work is complete.
The mortgage will be in the promoting company’s name while the work is being done if you decide to buy from a promoter. They’ll be responsible for the capital and interest during the build and you’ll need to pay them back. Though, if you already own the land and are hiring a professional home builder, you’ll be responsible for the finances while the work is being completed.
Acquiring a mortgage for a pre-existing home is much simpler! Once requested amount is approved, you’ll be able to shop around for a house that fits your budget and put an offer on the ones that interest you. When your offer is accepted, the bank will provide you with the mortgage and you’ll be able to purchase the home.
Which Option to Choose?
This all depends on your needs and how involved you want to be in your new home’s project. If you don’t mind being further away from city centers, aren’t risk-averse, and what to be very involved in the whole process, you’re likely to enjoy facing a house-building project – whether it be a prefab one, one for which you purchase pre-made plans, buying from a new development, etc. However, if the neighbourhood in which you live is of utmost importance, the best option for you is to buy a home that already exists on the market in the neighbourhood you’d like.
Major Renovations: The Best of Both Worlds?
Another option available to you is buying a property in need of a little TLC. Before purchasing, though, you’ll need to make sure the basics are in good condition, such as: the foundation, the building’s structure, the roof, etc. You can then go ahead and completely renovate the inside of the house. This option allows you to purchase a home in a neighbourhood you’ve always wanted to live in, but have your house fit your needs and wants. If your renovations are well thought out, the house’s resale value is likely to skyrocket, making its value greater than the brand new houses built in the suburbs. Though, just like with getting a house built, you’ll need to be ready to be quite involved in the project. To learn more about major renovations, check out our article about full house renovations.
Ready to Discuss your Project Further?
Beginning the construction of a new house and getting renovations done are fairly big projects. Not to worry, though! We can help you throughout the entire process. Our Renovation Advisors have years of experience under their belts and know all there is to know about the industry, and are thus highly qualified to help you every step of the way. No matter the kind of project you plan on undergoing, we can help you find the right professional for the job – whether it be an architect, structural engineer, general contractor, house builder, etc. They’re all Verified, making them qualified to help you find what works best for you!
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