Understanding the Financials of Home-Building

Understanding the Financials of Home-Building

Maybe you’ve always dreamt of a custom home. You may have the perfect piece of land, or you can’t find the right home in your desired area. For some, it might be an opportunity to invest. The question then arises: How much does it cost to create your own abode?

To put it simply, the answer isn’t straightforward. However, the primary factors that influence the costs are:

1. Home Size: Naturally, a bigger house will cost more. Consider the difference between building a cozy 2,000-square-foot home versus an expansive 5,000-square-foot mansion.
2. Interior Choices: The finer things in life, like marble countertops, come at a higher price. Remember, luxury additions will make the budget grow.
3. Where You Build: Just as property values differ by region, so too do construction costs. Some areas, particularly the Northeast and West, might be pricier than the South.

Building vs. Buying: A Quick Look

Many wonder if constructing a home is cheaper than purchasing an already-built one. In 2021, data revealed that a new single-family home’s average sales price was $464,200 while building one cost about $343,600. But these numbers can be deceptive.

The mentioned $464,200 includes both the home and the land it occupies. The $343,600 is just for building the home, without counting the land. Hence, building might be the way to go if you own land. If not, buying an existing house might be more financially sensible.

For a clearer picture, in 2019, the National Association of Home Builders (NAHB) reported that an average lot costs close to $90,000.

Another thing to remember is that hiring a general contractor will add 20-30% to your total expenditure. While the idea of being your own contractor might seem tempting, it’s a massive responsibility and can end up costing more due to potential mistakes or lack of expertise.

The Big Picture: Where Does the Money Go?

According to a 2019 NAHB study, building an average-sized 2,594-square-foot home would cost around $296,652. The major cost comes from the interior finishes, which cover every nook and cranny from the doors to the dishwashers.

Paul Emrath from NAHB notes, “One can certainly find ways to reduce costs. Opting for more budget-friendly interiors or skipping certain luxury additions like fireplaces can help.”

The key is balance. It’s easy to get carried away with upgrades, so be wary of costs sneaking up on you with each additional feature.

Yearly Cost Fluctuations in Construction

Prices can change yearly, and sometimes, these fluctuations can be unexpected. A stark example is the unforeseen price rise in building materials during the COVID-19 pandemic. As Mr. Emrath points out, international factors can also impact material availability and cost, as happened with concrete a few years ago due to increased demand in China.

In sum, whether you’re building or buying, timing is crucial. Building a home is a long process, averaging about 9.7 months. So, while it’s an exciting journey, it’s akin to expecting a new member of the family – one with a hefty price tag!

In Conclusion

Building a home after 55 is an adventure in itself. It’s about creating a space tailored to your desires. By understanding the costs involved, you can make informed decisions that align with your dreams and your wallet.