Well, it's been a long road to get to this point. The days of renting are almost over for us! A few months ago, my wife and I started the home buying process, and through some twists and turns have landed on building a home.
Very fortunately, we have a lot of people around us that have also built homes in the past (including our realtor…which I'll get to shortly).
We were able to pick up a bunch of wisdom during this first part of the process before the actual construction phase happens, which I felt would be really valuable for a lot of the young people out there that might go with the route of building a home later on.
There are few things that I've learned about building a home so far that could save you money
The home buying process isn't easy for sure, and I know that a lot of millennials like me are starting to dip their toes in the water.
One of the reasons that we decided to build instead of buy a resale home is that the Houston real estate market is pretty heavily tilted towards sellers right now. It looks like it will be for at least a little longer since inventory supply hasn't even come close to catching up with demand.
There were homes we were interested in that within one day had nine offers (at or above asking price) and were off the market almost instantly.
So, we decided to build (which takes about 5-6 months on average for our builder). It turned out to be in the perfect location for us, great schools for when we eventually have kids, and also most importantly…close enough to the water. 🙂
Here's what you need to know about building a home:
1. The initial price is NOT what you will actually pay
Fortunately, we went in knowing this ahead of time. Builders tend to price their homes in a really attractive way compared to the market, but the upgrades can absolutely destroy your budget if you don't have iron-clad discipline.
Nearly everything is more expensive through the builder. They count on new buyers opting for convenience and the idea of walking into a fully completed home instead of having work done cheaper later down the road.
In fact, the sales rep for the company told us that straight-up (which I actually appreciated).
You'll have structural upgrades, and then interior design upgrades. Our goal going in to this process was to focus on things that would help the eventual resale value of the home in both areas.
2. An experienced real estate agent is key
You can go into the home building process without an agent, but I'd highly recommend against it. Our real estate agent is highly successful, experienced, AND has built a home for themselves in the past.
When the sales people are giving their pitch on various items, having an agent that you can look over to and ask: “Can we do that cheaper later?”, or, “Do we actually need that?” is huge.
She really guided us to put our upgrades in the kitchens and bathrooms, but stay reasonable at the same time.
For example: get the granite that comes standard with the home because it's desirable to future buyers and great for resale, but don't buy the level 14 mega upgraded granite hand polished by Tibetan monks and cleansed in holy water.
It's a waste of money, because future buyers probably won't appreciate the difference. They just want to check granite off of the list.
3. Build a B house in an A neighborhood
Just based one what we are seeing from existing homes in the neighborhood, some people opted to build the largest and most expensive (4,000+ square feet!) homes possible from their builder.
While that sounds awesome, it also might make it harder for them come resale time. If you have one of the most expensive homes in a middle/upper-middle class neighborhood, there's a good chance that you are limiting your potential future buyers.
If a person can afford the largest home in our neighborhood, there probably isn't much stopping them from buying a slightly smaller house in an even nicer neighborhood instead.
We opted to go more towards the middle of the spectrum with our home size, which will probably make it easier to sell later.
4. Surviving the “design center” *MUST READ*
This is where the biggest bloodbath can occur, and is an experience that is clearly designed to make you spend way more money than you originally planned.
In the case of our builder, we needed to have all of our design options picked out before construction could start. We had two design center appointments, the first one being two hours and the next was three hours.
The problem with building a home is that the models you look at all have the upgraded options in them, which forces you to have a skewed picture in your head of what your house will look like.
If you were to pick everything from the design center that you saw in the model home, you're probably looking at $60,000 – $75,000 in upgrades. Just crazy.
Don't fall for the “convenience” of having everything done when you move in.
Again, the builder is counting on you just wanting to have everything done when you close on the house. Our strategy was to be more patient, and find places we could save money by either having the work done outside of the builder, or identifying things we could do on our own.
Here are a few suggestions:
1. Consider getting your floors done outside of the builder
Out of everything that we looked at, floors seemed to have the most insane markup. After our first design center meeting, we went to a few flooring stores to get quotes for the same work that the builder had quoted us, and it was pretty shocking.
For us, it will cost half as much to go outside of the builder and get better quality flooring.
That means that the house won't quite be “done” when we get the keys, but is it really ever done anyways?
2. Don't be afraid of a little sweat equity
The builder will get you on a lot of little things, like upgrading to fancier light switches for $300.
After researching the electrical blueprint of the house and doing some quick math on the amount of switches, I could probably do the same upgrade for $50 (or less) with an hour of time and a screwdriver.
In fact – most lights, fans, door handles, and anything else that's a small thing can probably be done much cheaper on your own. If you don't like the cheapest option or what already comes built into the price, just do it later by yourself.
Where you don't want to kid yourself is on the more serious things like major changes to electrical or tile work. If you think there is a high chance that you'll get fried by trying to add extra GFIs or something like that…let the builder do it.
3. Put your money in the kitchen and bathrooms, but don't be dumb
If you want to put in some tile accents in the bathroom or something that makes those spaces look “nicer”, that's cool. But similar to the granite that I mentioned earlier, don't put in some mega upgrade that nobody will notice.
If one style of accent tile costs $150 and looks pretty good, and another one looks incredible for $1,000, I'd suggest going with the cheaper one. You can get the nicer one when you're building your forever home later.
Also – don't get destroyed on cabinets. There are so many different add-ons you can do there (all expensive), but I'd just make sure you pick nice colors and good quality and be done with it.
4. Don't date your house too much
This is a term that I learned from my wife, but apparently “greige” (a mix of grey and beige colors) is super hot on Pinterest right now.
I'll admit, it looks pretty nice and I like a lot of the grey color schemes for floors, paint, and cabinets that we looked through. However, if you go too hard on a current design trend you might make your house a little harder to sell later.
Just like wallpaper and weird pink tile in the bathroom, the grey stuff will go out of style at some point. You don't want your potential future buyer walking into your home 10 years from now and saying “oh wow this looks SO 2017.”
As long as you keep future buyers in mind while you're choosing this stuff, you'll probably be fine.
5. Get outside opinions from people you trust and take pictures!
One of the most helpful things we did was take pictures of everything we could after our first design meeting and then show our friends to get their opinion.
I didn't care as much about what they thought from a “does this look pretty” standpoint. I wanted functionality tips.
Was our tile color too light? Is this carpet going to be a problem with pets? What do you think about the switches being here instead of there? Is this upgrade worth it over the long-run?
Experienced homebuyers will help you think of things that you didn't even know would be an issue if you've never owned a home.
The next post in this mini-series will be about the actual building process (expect it about 6 months from now)
We were told that the home would be done in October, but I'm expecting at least some delays and think it will realistically be finished in late November or even December.
I'm actually really looking forward to documenting everything and sharing that part of the experience. I keep hearing that you have to stay on the builders almost daily to make sure they don't cut corners, so I'll definitely be there!
We are in the process of building and its about as painless as could be. We picked out all of our nice finishes and had no issues staying in budget.
I think a lot if not most of the experience differences will just be due to the builder and what their process is. I’ve had a couple other friends build, one just a couple miles from me, and his experience was way different than mine.
Still, awesome advice! When the price to build is about the same as buying an older home, the older homes lose some of their appeal…
That’s true! Glad to hear it’s going well for you 🙂
Congrats on starting the home buying process, super exciting!
Love the fact that you mentioned getting an experience real estate agent is so important. They all get paid the same 3% (at least in NY) so why not take the time and get the best one possible?
We have family members going through the home building process as well so we will certainly send this article there way.
I also really liked how you said build a B house in an A neighborhood. That’s so important in keeping your costs down. Buying a house bigger and more expensive than you need is almost always a bad decision.
My wife and I have been considering container homes when we move after we start our family. Been doing a lot of research it’s pretty fun.
Our best advice for anyone buying a home is DONT RUSH! It’s the biggest purchase of your life take time and make the best financial decision possible.
Yeah not rushing was huge for us. Our biggest fear was that we would have to jump on a home too quickly and get something we weren’t happy with. This process gave us a lot more time to think and plan.
That’s awesome that you guys decided on building a home! I know my wife and I sure thought about doing the same! But it did not fit in our market at the time! We still had more houses for sale than we have buyers.
I will say though in our area if your purchasing anything over $200k now then you are better off building it!
Having a realtor in buying/building a house or an incredibly knowledgeable realtor in selling makes the world a difference. Our realtor was able to tell us what upgrades we needed to actually do, to get our money back when selling our first house!
Without her, I would have totally spent money on things that I thought would have brought me value and ended up that they didn’t bring any more money to the table!
I look forward to seeing the progress on the house!
Yeah man I’ll keep everyone posted!
Woohoo! Congrats on building that home. I did a little happy dance when we sent in our last rent check. 🙂 We do plan to build once we’ve achieved FIRE, but we’ll be in this house for hopefully another 20 years or so.
Mr. Picky Pincher’s dad built his own house–like, literally with his own two hands. His advice was not to cheap out on the plumber or electrician. And don’t cheap out on fixtures like the water softener (a necessity in his area) or A/C units. Get the good stuff so you know it was built right the first time.
Wow he built his own home??? I had another reader tell me that too. So crazy.
Congrats on starting the process of building a home! I love how you talk about being timeless and not making things dated. It’s funny how I notice “trends” from just 5 years ago! Simple is definitely the way to go. Thanks for sharing!
No problem! The grey trend is so big right now! At the flooring store, we were told that anything grey was carrying higher mark-ups than other floor colors. We are looking at wood or wood tile, and a lot of those are coming in grey tints now too. We’re going to probably go with something a little more “timeless”.
This was really helpful. I’m currently looking for my home with my family and the initial floor plan price vs the actual price to build is wayyyy different lol. I got so excited looking online at different house models and floor plans. When I actually visited the neighborhood that’s when I found out about the upgrades they add and lot price for location within the neighborhood. We plan on building here in Georgia because we don’t plan on moving from our future home anytime soon. But thanks for this info, I look forward to this mini-series.
Glad it helped! Another good tip is to look for an inventory home in whatever neighborhood you’re trying to buy in. A lot of times, people will put earnest money down for the build and then bail during the construction process. Homes like that can be had for a really nice discount!
Whoooo yay for building, that is very exciting! I hope we are able to build one day as well..and when/if we do, I will heave to hunt this post down. Great info 😉
Congratulations and great advice! When we built, we decided to go with almost all of the square footage upgrades we could because we had planned for a large family. We opted out of all of the aesthetic upgrades not only because we could get better quality at a cheaper price on our own, but also because of property taxes. Improvements are factored into property taxes here so by doing the upgrades that don’t require a building permit later on (like our patio, finished basement, bathroom and kitchen upgrades), we save on property tax.
We are actually going to pay cash for the improvements to keep them off of the property taxes. Should have included that in the post!
Congratulations on home building! It’s such a fun yet stressful process 😀
My husband and I have moved around quite a bit (8 times in the last 13 years)! We’ve purchased 6 homes and 3 of which were built.
I think the main things I would note would be to get a third party inspection before inspection and one at final walk through. The builder has their best interest in mind, of course they want to give you a quality product because word of mouth travels quickly, but an inspector would bring up issues that the builder has missed.
Not sure if you were able to negotiate concessions, but having a realtor on your side helps with the negotiation process. Our most recent realtor helped up get 7% of the value of our home in free upgrades, that’s a ton of money not to bring to the table.
Be super courteous and respectful to your construction manager! He/she may do the extras that you didn’t ask for! We had 5 cedar ceiling beams installed gratis! And he did a lot more because he said we were so super nice to him throughout the process versus people that yell at him or threw things at him! Nobody deserves that! I know home building is stressful but what good is not being nice going to do?
If you are planning on finishing things or doing things after you move in, take LOTS of pictures! For instance, in my son’s, there’s an area behind one of the walls that was just a total waste of space. We took lots of pictures and took some measurements of where 2×4’s, electrical, etc were located so we knew where to cut the sheetrock to create a little alcove in his room.
Gosh, there’s probably lots more I’m forgetting, but that’s all the major things that come to mind at the moment.
Good luck to you with the building process!
Great tips, thank you!
Congratulations on bulding!!! I knew a family who built houses right next to each other (the uncle, the dad and the only oldest brother) and they couldn’t be happier.
You know I’ve been looking into real estate investing recently, but building never occurred to me. But seeing as it can be cheaper than buying an existing house, why NOT build your own rental property? This might seem like an obvious question, but you don’t have to pay a mortgage do you? You pay for the land and you pay the construction company, but once the house is finished I would imagine that all you would have to pay is property tax. Donyou have any books or websites you would recommend for someone interested in building a house?
Hi Christa. My husband and I are building a house right now, so I might be able to answer your question. There are a lot of different options for how to pay for a house you’re building. If you are able to pay for the land and the cost of building outright, you would not have to have a mortgage and could just pay your taxes every year on the property. If you don’t have the cash to pay for the whole project, you could apply for a construction loan. If you own the land and have a general contractor lined up with a detailed estimate of the cost, you could apply for a construction loan. At a higher interest rate, the bank gives you money in pieces as each part of construction is completed, then you could convert this loan to a traditional mortgage (with a lower interest rate) at the end of construction. Some builders will also build the house to your specifications and then sell it to you at the end, so you could just apply for a traditional mortgage for that. Hope this helps and good luck with your decision!
We looked at building a home, but we didn’t like how cookie cutter the houses in our price range looked. In addition, it cost an additional $50k to finish a basement and deck. So, we dialed back our want list, kept our budget in check, and purchased a 17-year-old home that we love!
Nice! I wish we had basements here!
A tip or two along the way. If you plan to have wired (as opposed to wireless) surround sound speakers, video/security cameras, router (cat 5) access away from your router, plan that out very specifically.
Once the framing is up and they are running electrical and finishing in-wall plumbing – head over to your house on a Sunday or after the workers quit for the day and run all of those wires yourself. A contractor friend or even the guy at Home Depot can tell you how to get the right wall mounts and how to encase the wires to meet code.
Typically the sub-contractors will never even notice you did it and the dry-wall will go in with all of your receptacles right where you want them.
That’s a great tip! I had thought about getting that option done through the builder, but they wanted $2,500 so I passed.
Awesome! Houston’s market for building new homes is hot right now! I definitely love the townhome style that’s been popping up everywhere.
I’ve been under contract with my new home build since January and since it’s been raining so much the pas month of so they just poured the concrete…
Definitely ready for the process to get going. Looking forward to reading your post-build article.
Yeah we are ready to get going too!
Great article. My wife and I have toyed around with the idea of building a “forever home” at some point in the future, and this definitely makes me think about the possibility more.
One question I had is about the realtor. I definitely see the value of having a realtor when someone is buying an existing home (especially since the seller is generally the one who pays for their services). When you use a realtor for building a home, who pays their 3% commission? The building company? Or is it you, the future home owner?
If it is you, do you mind if I ask if the cost is worth it to you? For example, a $250k home would yield a $7,500 price tag just for the realtor (at 3% fee). It seems that the money could be better spent elsewhere? I’d love yo know your thoughts on that. Thanks!
The builder paid the commission in our case, which is pretty common from what I can tell but I’m sure they just rolled the cost of her commission into the home, so I’m sure I paid for it regardless. She helped guide us to a lot and home that will be great for resale, helped us decide between communities to build in, gave us insider tips on the various builders and which one to choose and had home values that held up, etc.
There was also the process of gathering information on other resale homes over the past few months and taking us through a bunch of existing homes. I’m all about paying experts if it means I’ll gain knowledge and make a better decision.
We just finished building our first home (closed in February)! It’s definitely a whirlwind experience to say the least. I think the biggest things we found were definitely keeping up with the builders. We checked a few times a week and even found that they missed bracing for the kitchen cabinets (fixed soon after). Another thing I would recommend is to have the power outlets moved up the walls for TVs you intend to hang. We didn’t know this was an option until our final walk through and we definitely could have used that advice! If you plan to add HDMI cords or any other cords (some mentioned above) ensure the outlets are covered with tape or something because the painters will likely spray the paint and paint over these slots. It may be too late, but also think about lighting in every room! The model will have extra lighting, but standard may include no overhead lighting for some rooms (office/living room). We ended up with our office without any overhead lighting. Lastly, our mortgage company offered 2% of the cost of the loan towards the closing costs. We were definitely thankful for that extra help when it came to closing time so it didn’t cut into our down payment as much. Congrats!
Good tips- thank you! Here’s another tip I have found most helpful: when the house is at the stage where the framing, plumbing and electrical are finished, and before the drywall goes up, do a complete walk through and take video and/or pics of every wall in the house. This way, you have a record of where all wiring and plumbing are located for future repairs, maintenance and upgrades.
Hi there!
I just stumbled upon your blog! I love it!
I am a Realtor/Investor/Advisor in the San Diego, CA area and I love helping people through this part of their lives.
A little about me: I am a third generation Realtor, an owner of my brokerage, I help people buy and sell homes, and I also invest and flip while helping others do the same.
I have noticed that you need to watch the builders “behind the walls” as many will cut corners or try to use more affordable products. For instance: today, I am closing escrow on a flipped property that I purchased 3 months ago. The home was built in 1990 and the builder used plastic plumbing for all the supply lines. All the way to the water meter. This product is notorious for failing and is one of the reasons I was able to get this home so cheap. I spent almost $15,000 re-piping the entire house to copper plumbing. Today, there is a resurgence of plastic plumbing products that builders, once again, are favoring for cost and ease of installation. I am VERY concerned. Many will argue that these new products are fine, and will hold up against the test of time just like copper. If the products prove to be inferior, then it will negatively effect your value down the road.
There is an extensive list of products that at one time were used for cost or efficiency that are now failing in catastrophic ways.
Anyway… CONGRATS on the new home! If you are ever in San Diego and want to talk about how I am helping people manage their financial goals through real estate… let me know!
Cheers!
-Trevor
I think you did a great job covering this topic. I am a Realtor and built my last house with a local builder. The one thing I would add is to take a ton of pictures during the construction phase. It sure is handy when you want to do a remodel or just need to know where wiring/plumbing or duct work is. Helps keep down construction mishaps and might save you some money.
My husband and I have been married for 6 years and are finally ready to build a home that we can stay in for at least 18 years. You mentioned that when starting a home building project it is important to put your money in the kitchen and bathrooms so that the spaces feel nicer but to not invest in anything that is too glamorous for the budget. That is a great piece of advice for us to take when we talk to a contractor about what needs to get done in the process.
Great post! I found it very informative. I would like to suggest installing residential solar panels in your home to cut down on electricity costs in the long run. Before building a solar energy friendly home, consult a solar installation service to understand the construction requirements and budget for the entire project. Professional solar installers will also be able to tell you whether your locality is suited for solar energy or not.
Thanks for the heads up to not date a home too much by going with color schemes and designs that are currently trending. My wife has been thinking about us constructing a house that we would eventually move into, but knowing to keep the look of the house in a way that won’t age was something we hadn’t considered. It might be time to start working with a new home construction company.
I have been wanting to build a new house, but I’m nervous about my budget. I would really like to not go over my budget and put myself in a bad situation! That is a good idea to get my floors done by some other business. If I could find cheaper floors or anything else cheaper through someone else that would save me a lot of money! I didn’t think about doing that. Thanks for the tips!
Thanks for the tips for building a home. My wife and I are hoping to build one next year, so I’ll remember what you said here. I’ll be sure that we watch out for upgrades and things that will make the price more than we plan!
I like that you mentioned to get opinions from other people. My sister is looking to build a home and wants it to be good. I’ll be sure to talk to her about finding professional builders and to talk with friends to get more ideas.