Author Topic: Building a house. Good idea?  (Read 5719 times)

Rinch

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Building a house. Good idea?
« on: March 16, 2018, 10:21:48 AM »
I'm all on board with the whole spending way less than you earn side of things and have got everything pretty dialled to the point where we can just about live on one income and save the other. I've also got a bit of a weakness for real estate related projects. I bought a rental apartment back in 2009, did a few quick renovations and since then it's been about as easy as these things get.  I've had to do a few maintenance things in that time but nothing major. All rental income goes directly to paying off the mortgage so I've never seen any of the money and the way I see it I won't touch it till it "matures" in 2025 when the mortgage is paid off and I'll have to find a new use for the money. Probably not the most profitable but psychologically, this approach appeals to me. 

Next up in 2015 I bought a one bedroom apartment in a ski town about an hour from where I live. Used it on weekends and holidays renovated it in my spare time and then rented it on airbnb. It now covers its mortgage and builds about 8k of equity per year but the running costs mean that it's not a great investment, probably 3% return is my best estimate. Based on the enjoyment it gives me I'd say it's worth it. It allows me to escape every weekend from my small rental apartment in the HCOL city where I work. But I now plan to sell this place, realise any gain I might have made and move on.

What with spending all this time in the mountains, learning a bit about rentals and renovation I've been working on the FIRE endgame and for me it looks like this. Live in the area where I currently have my weekend apartment, some remote working for real money gradually transitioning to a fun mountain job with a manageable commute to my current HCOL city in case I really need to work in an office. Why don't you just move into the apartment I hear you cry? Because I have a wife and kid, plans for one more and a one bed is fun for the weekend but not for life.
 
So for the FIRE dream we need something a little bigger. And here is where this has all been leading. A family house in this area would cost a not very mustachian 600k (we're in Euroland btw). But you can buy a plot of land for 200k and get a fixed price contract for someone to build a house on it for about another 200k. I'd do some of the project management and finishing myself but nothing major. By the time everything is added up we're looking at a conservative 450k. 

Once the house is built I plan to do one of four things. a) keep living in the city and airbnb the place in the mountains to cover it's mortgage when I don't want it b) Switch to remote working or a couple of days a week commuting and move out to the mountains and then in around 5 years c) cut all ties with the city and only work for fun. There is also an option d) which is to sell the house after it's built probably making a modest return for the whole business.   

I'm pretty excited about this plan but I think I need a sense check on this. I'm 34 now and estimate that working in decent paying job is probably wise until at least 40. The most mustachian thing to do would probably be to stay in the city on the weekends and top up my investment account but I struggle to get as excited about that. Another factor for me is that I've always wanted to build a house. The renovations I've done have convinced me it's not a good idea to take on too much so this seems like a manageable approach. 

What do you geniuses think? 


Scrapr

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Re: Building a house. Good idea?
« Reply #1 on: March 16, 2018, 10:31:32 PM »
How confident are you in your numbers? $200k lot should support a $800k home. You may be "under" building for the area.$200k home to build seems very low. SDC can easily run $50k where I am before you get to sticks and bricks. Are you going to GC the job? Or hire out?

 If you decide to GC this I'm going to short housing because we are at a market top. (no offense)

11ducks

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Re: Building a house. Good idea?
« Reply #2 on: March 17, 2018, 05:50:25 AM »
Id second getting a thorough evaluation of those numbers, seeing if you can find people in the area that have done similar at your price. I've always heard that building your dream house is way more expensive than buying and fixing up a house. Then on the chance that you sell, you are counting on your building, design and decorating choices to be in line with what the market is looking for.

CatamaranSailor

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Re: Building a house. Good idea?
« Reply #3 on: March 17, 2018, 07:05:51 AM »
My wife and I built a house...and when I say built it I mean we did everything from draw the plans to stretching the carpet. We were our own general contractors and only hired out the foundation, flatwork and rough electric. Everything else was her and I, both working full time jobs and with a 3 year old. This is what I would tell anyone contemplating a project like this.

A) Acting as general contractor is where you will save the greatest percentage of $$ however, you will earn that $$ in frustration and fear and from generally being pissed off for 9-12 months. Make sure your heart is healthy.

B) We did way too much work ourselves. We thought we were saving money but in reality jobs that took us 2-3 weeks to do a good contractor could have done in 2-3 days (having the right tools and knowing how to get around problems is gold). I would hire out almost everything (using only high quality contractors of course) except painting and landscaping. You'll finish in 1/2 the time and save a ton of interest on your construction loan. I know this sounds antimustachian but it's not....it's about being efficient. Once you sign the loan papers you will immediately understand the "time is money" concept deep down in your guts...every second something is not happening on your project is another tick on the interest clock.

C) You make your money as a general contractor by being organized and efficient so understand you will have no life during the project. If you're not on the site then you're making calls, arranging inspections, ect.

D) Where building projects go nuts isn't in the building envelope but in the fixtures and finishes. Choose a few high dollar upgrades you know you'll want (we put in a cast iron claw foot soaking tub for my wife and a recirculating hot water system because she's part mermaid) but keep everything else quality, but not extravagant. No one cares if the toilets were $200.00 or $5,000 each.

E) Expect to panic a few times. You will run into issues which appear to be game stoppers...they aren't but you'll have to work through them. Mr. Murphy LOVES construction projects and makes it his special hobby to visit each and every one!

F) Run your numbers constantly...like nightly. It's amazing how quickly a project can go off the rails. Have an emergency fund just like you have for your regular finances. You will need it at some point.

G) Don't forget to budget for things like blinds/curtains, shelving, light bulbs, fences/retaining walls, etc.

I could go on and on. The fact is I love construction and I would build again. However, as another poster already mentioned, real estate is overheated (at least here in the US) so caution is warranted on the financial side. We did build at the top of the last real estate bubble and ever with the collapse never went into the negative.

As long as the number work and you are willing to be involved at every step of the way (assuming you are your own GC) you can do very well with a project like this. Of course, like they say, all real estate is local so you'll need to figure out what works for you.

We were dumb kids who made every mistake in the book and I wouldn't trade the experience for the world. One nice benefit...you decide to do this, there will never be another house project you'll be afraid of tacking again! Good luck..let us know what you decide!

NV Teacher

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Re: Building a house. Good idea?
« Reply #4 on: March 17, 2018, 03:32:19 PM »
Listen to Sailor14.  His advice is spot on.   

Scrapr

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Re: Building a house. Good idea?
« Reply #5 on: March 17, 2018, 05:01:33 PM »
Agreed w/sailor

I built a house over 30 years ago while working full time. Lost about 30 lbs. I finally hired out some stuff at the end. I was exhausted. The finished up a couple small items when I sold it 7 years later

zolotiyeruki

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Re: Building a house. Good idea?
« Reply #6 on: March 18, 2018, 01:58:46 PM »
I have dreams of building our retirement home some day, so posting to follow.

Rinch

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Re: Building a house. Good idea?
« Reply #7 on: March 20, 2018, 10:43:57 AM »
Thanks for the responses everyone. The point that it's essential to be on top of the numbers has given be some new impetus to track and model everything as I go. The project is actually in Europe (where I live) so some of the process is probably a bit different though a relentless focus on the financials is universal. Since I last posted I've actually had an offer on the land accepted so this is happening! Shit!!

After having done some relatively minor renovations in the past I've concluded that I haven't got the ability or heart to take on the general contractor role myself. I think I'm better off going to work and paying the bills of someone who can take on that stress for me. I had a taste of what it's like to finish work in the evening then drive an hour to the new place and start work again and I don't think it's worth doing that again. I realise this means that the build cost will be more but I know it's the right decision.

The model that we're going to use is that we take an option on the land (which I've just done). Next we will work with a main contractor to design the house. We have a period of design (which we pay for upfront). Once that is finalised they will provide us a fixed price quote for absolutely everything. If we manage to agree that then they will submit the planning application based on the design. Once the planning application is approved we'll sign all the contracts, complete the land purchase, secure the finance for the build and we'll be on the way. We'll pay out as they hit various milestones so we should be relatively protected in case they went bankrupt or something. Though getting someone else to finish a half built house would be a total nightmare so hopefully won't come to that. The contractor has build about 70 houses over the last 10 years in this area so hopefully they know what they're doing.

The land comes with outline planning permission that says you can build a house with a habitable space of XXm2. The size of the house you can build is governed by a ratio of house to garden that you have to stick to so there is no room for negotiation. However, you can add garages and cellars that don't count towards habitable space.

The main risk in the next phase is to design a house that can be built within our budget and which will be worth more than it costs to build. If we end up with a price doesn't work our only option will be to walk away from the land and write off the design expenses. Hopefully that won't happen but need to be prepared to do it. There is no point whatsoever building something that is underwater from the start.

Rinch

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Re: Building a house. Good idea?
« Reply #8 on: July 05, 2018, 02:46:10 AM »
Haven't updated this for a while so I thought I'd add that this is happening! We submitted our planning application around mid-may. This being a certain western European country with a proud history of bureaucracy, planning applications typically take two months to process and if they give you an ok then you have to wait another three months with a sign up to give people the opportunity to object. I imagine they review any objections and if they are substantial it could take longer. With a fair wind we will probably have the final go ahead by late autumn.

After about a month the planning office asked for more information on our proposed materials and colours. I don't know if this resets the clock or just pauses it while we responded. In any case have now furnished them with an extra page of photos of white rendered walls and light wood and am back to waiting for them to tell me if they are going to give it the nod.
Over the summer we have to sort out the financing and the internal design while we wait for the final confirmation. More on these later.

   

Linea_Norway

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Re: Building a house. Good idea?
« Reply #9 on: July 05, 2018, 03:55:35 AM »
A) Acting as general contractor is where you will save the greatest percentage of $$ however, you will earn that $$ in frustration and fear and from generally being pissed off for 9-12 months. Make sure your heart is healthy.

My people underestimate what managing a house building project requires. And if you end up being the responsible person, you cannot claim a guarantee from the builder if anything turns out to be wrong. So you make a good decision to leave this job to the builder.

Haven't updated this for a while so I thought I'd add that this is happening! We submitted our planning application around mid-may. This being a certain western European country with a proud history of bureaucracy, planning applications typically take two months to process and if they give you an ok then you have to wait another three months with a sign up to give people the opportunity to object. I imagine they review any objections and if they are substantial it could take longer. With a fair wind we will probably have the final go ahead by late autumn.

After about a month the planning office asked for more information on our proposed materials and colours. I don't know if this resets the clock or just pauses it while we responded. In any case have now furnished them with an extra page of photos of white rendered walls and light wood and am back to waiting for them to tell me if they are going to give it the nod.
Over the summer we have to sort out the financing and the internal design while we wait for the final confirmation. More on these later.
   

You don't want to let us know which country it is?

That the planning officer is asking for more information is usually a sign that they are working on the application. I think this won't restart the counter.

Maybe you can do some of the interior work yourself, like painting and flooring. Maybe there is something to save there.

Good luck with your project.

MarcherLady

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Re: Building a house. Good idea?
« Reply #10 on: July 05, 2018, 03:05:04 PM »
Hey Rinch, just coming by to say hello. CatamaranSailor, thanks, that was useful insight.

Rinch

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Re: Building a house. Good idea?
« Reply #11 on: July 06, 2018, 01:48:11 AM »

You don't want to let us know which country it is?


I was thinking of being vague about the location but I may as well tell you that it is in France as it would have come out anyway as I start to talk about the details. 

Rinch

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Re: Building a house. Good idea?
« Reply #12 on: July 25, 2018, 09:28:24 AM »
Things are moving on in the house building stakes. I received confirmation from the Mayor's office that our planning application has been accepted! This seems like a pretty big step. Unfortunately, that's not the end of the story. We now have to display a sign on the site for two months to give people the right to object. If no one objects we could start building in as little as two months, assuming we can sort out everything else by then. If someone does object then we could end up in some sort of tribunal. I'm not too sure how this works but hopefully it won't come to that.

All the DIY stores give out signs to use which you have to fill in. The main contractor we're working with have told us that we have to take a photo of the sign in position with a copy of today's newspaper to show when we installed the sign. I'm not sure how this will prove anything. We could easily use a paper from a month ago. I'm not sure they have really thought this through. The letter I got says that failure to display the sign properly could get you a 1500 EUR fine.  We will need the time to sort out everything else so no chance of starting work before two months have passed anyway. 

With planning permission (sort of) in the bag we have to get real about how we're going to pay for this whole business. We've been talking to a mortgage broker who thinks we can get a ludicrously good rate of 0.84%. This is where my rational brain is in conflict with my emotional brain. A big part of my plan is having a small enough monthly payment so that I can take a lower paid job if I need to. The idea of paying off the mortgage as quickly as possible and never having to pay for housing sounds like freedom to me. With rates this low I know I should borrow every cent they will give me and chuck any cash left over into index funds which will almost certainly outperform the measly rate of interest. From a rational perspective this is a very clear decision.

Despite this, I think I'm still going to put down a hefty deposit. Is this unmustachian? I just think that if my mortgage was at a level where I could comfortably pay it with any job. I wouldn't need to fear losing or quitting my current job. I know I could just use the money I put in index funds to cover the mortgage payments if it came to that but the idea of earning less than I spend is not very palatable. Anyway, i don't care too much what anyone thinks. Having a small affordable mortgage will bring me a greater sense of well being than maximising returns so that's what I'm doing.
 
My cash is spread across several countries where I've worked over the last decade so I need to start to move it to my french bank account. This process has a great deal of potential for upset because the exchange rates could cost you a lot if you get the timing wrong. I've got previous with this. In 2014 I transferred quite a bit (for me) of money from swiss francs to euros. A week later the swiss central bank decided to un-peg the swiss franc from the euro and the value of the franc increased by 30% overnight. If I had made the transfer a week later I would have had 30% more euros. I know there was no way I could have known but it was a blow nevertheless (https://www.reuters.com/article/us-markets-franc/swiss-franc-jumps-30-percent-after-swiss-national-bank-dumps-euro-ceiling-idUSKBN0KO16Y20150115).

This time I have to transfer some money out of the UK with brexit looming on the horizon. Do I transfer right now with the pound at a relative low? Or wait to see if a deal emerges which could improve the exchange rate? A no deal exit will probably cause the rate to fall further?



Irishtache

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Re: Building a house. Good idea?
« Reply #13 on: July 26, 2018, 10:52:05 AM »
Hi Rinch. Interesting thread. I love the idea of building in France but l would dread building in France too, for some of the reasons you cite, bureaucracy for one and language for two. It might help assure your permission if you were to get quotes from local builders, so the community has a stake in your project.

As to currency, it seems to me that the prime motivation in any but the largest transfers should be the convenience for yourself. Sterling may hover a bit hut seems to bounce back to € = 89 - 92p. Not going to make a huge difference to you, l think. Best of luck with it. Ken.

bacchi

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Re: Building a house. Good idea?
« Reply #14 on: July 26, 2018, 11:01:36 AM »
All the DIY stores give out signs to use which you have to fill in. The main contractor we're working with have told us that we have to take a photo of the sign in position with a copy of today's newspaper to show when we installed the sign. I'm not sure how this will prove anything. We could easily use a paper from a month ago. I'm not sure they have really thought this through. The letter I got says that failure to display the sign properly could get you a 1500 EUR fine.  We will need the time to sort out everything else so no chance of starting work before two months have passed anyway. 

Take a picture with a phone and email the picture to yourself, your spouse, your brother, and his dog. The email date (and the exif data) will confirm when the picture was taken.

Or take the picture, print it, and snail mail it to yourself. Don't open the letter.


eta: Oh, building is a pain-in-the-ass. It took us almost two years but it's a hot market here and subs were hard to find.

The advantage of being very involved is that you can be sure that it's done correctly. Want to know why so many new windows end up being sold for cheap or donated? It's because the framing crew fucks up and it's easier to just order new windows that fit the frame rather than bring back the framing crew and move lumber around.

Tip #1: Take a lot of pictures. It'll be good to see where the pipes and wires run when you're hanging cabinets.
« Last Edit: July 26, 2018, 11:09:06 AM by bacchi »

Rinch

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Re: Building a house. Good idea?
« Reply #15 on: July 27, 2018, 07:04:49 AM »
Hi Rinch. Interesting thread. I love the idea of building in France but l would dread building in France too, for some of the reasons you cite, bureaucracy for one and language for two. It might help assure your permission if you were to get quotes from local builders, so the community has a stake in your project.

As to currency, it seems to me that the prime motivation in any but the largest transfers should be the convenience for yourself. Sterling may hover a bit hut seems to bounce back to € = 89 - 92p. Not going to make a huge difference to you, l think. Best of luck with it. Ken.

Cheers Irishtasche, I'll try and keep this updated to keep a record of the inevitable drama. My french is pretty good but it's funny how as soon as the conversation moves to a specialised area you just don't have the vocabulary. We we're talking about cladding a while ago and they asked me if I liked "mélèze". Turns out that's larch but I've literally never had a conversation before where anyone has mentioned larch trees. Not that I knew anything much about larch in english. Turns out it's goes a nice grey colour if it's untreated and a horrible black colour if it is exposed to rain. Luckily we have a big overhanging roof in the design. Every day is a school day I suppose.

Good point on using local contractors. The main contractor we're working with is french and assures me that he is pretty tight with the mayor's office, He seems like a bit of a wide boy so I've never known how much of this was true but since the planning application seems to have made its way through without too much difficulty maybe he really is. We're pretty reliant on him to guide us through the process so hope he turns out to be reliable. Picking a main contractor after a couple of meetings is certainly a massive risk. Time will tell whether we have got lucky or not. 

Rinch

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Re: Building a house. Good idea?
« Reply #16 on: July 27, 2018, 07:09:08 AM »
All the DIY stores give out signs to use which you have to fill in. The main contractor we're working with have told us that we have to take a photo of the sign in position with a copy of today's newspaper to show when we installed the sign. I'm not sure how this will prove anything. We could easily use a paper from a month ago. I'm not sure they have really thought this through. The letter I got says that failure to display the sign properly could get you a 1500 EUR fine.  We will need the time to sort out everything else so no chance of starting work before two months have passed anyway. 

Take a picture with a phone and email the picture to yourself, your spouse, your brother, and his dog. The email date (and the exif data) will confirm when the picture was taken.

Or take the picture, print it, and snail mail it to yourself. Don't open the letter.


eta: Oh, building is a pain-in-the-ass. It took us almost two years but it's a hot market here and subs were hard to find.

The advantage of being very involved is that you can be sure that it's done correctly. Want to know why so many new windows end up being sold for cheap or donated? It's because the framing crew fucks up and it's easier to just order new windows that fit the frame rather than bring back the framing crew and move lumber around.

Tip #1: Take a lot of pictures. It'll be good to see where the pipes and wires run when you're hanging cabinets.

Those are all great tips. I don't know why I hadn't thought about emailing photos. I think I will just email a photo directly to the planning office on the day I put it up. There can't be any argument with that I would think.

I'm hoping to be down there as much as possible once stuff starts happening to make sure they don't get too much past me.

Car Jack

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Re: Building a house. Good idea?
« Reply #17 on: July 27, 2018, 07:21:36 AM »
A few tips I've learned for US based building.  My house was built by a guy I worked with and he acted as part time builder and GC.  Another co worker had a builder do most work and he just helped out.

1) If you hire out work hourly, you MUST, MUST, MUST be on site every second as if these guys are 7th graders and will screw off the moment your back is turned.  In building the house I'm in, my co-worker hired framers hourly.  He'd check in first thing in the morning, go to work, check after work.  It seemed things went slowly.  One day, he checked in first thing in the morning, drove away, parked his car and snuck through the woods to watch.  The guys literally sat around all day, drinking beer and doing zero work.

2) Understand what inspectors want to see and what will impress them.  My best friend is an electrician, but lives too far away to help.  When we built a detached garage, he told me to label every outlet and every light receptical with a number for the wire run.  Next to the circuit panel, put up a diagram with each circuit drawn out with numbers.  This makes the inspector's job wicked easy.  (sorry....lifelong New Englander).  Another trick, he said to use green ground wire nuts for safety ground connections at receptacles.  Although not required, it shows extra care was taken.  I'm sure that plumbing and framing and such has similar tricks.


AccidentalMiser

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Re: Building a house. Good idea?
« Reply #18 on: July 27, 2018, 07:54:19 PM »
We now have to display a sign on the site for two months to give people the right to object. If no one objects we could start building in as little as two months, assuming we can sort out everything else by then. If someone does object then we could end up in some sort of tribunal. I'm not too sure how this works but hopefully it won't come to that.

The letter I got says that failure to display the sign properly could get you a 1500 EUR fine.  We will need the time to sort out everything else so no chance of starting work before two months have passed anyway. 

These two things alone would be enough to make me go and try to make money elsewhere in some other way.  I think you're taking on an insane amount of risk with this project.

DoNorth

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Re: Building a house. Good idea?
« Reply #19 on: July 28, 2018, 08:01:14 AM »
Listen to Sailor14.  His advice is spot on.

Really well put.  We did the same thing in 2015 along with one really experienced carpenter I hired by the hour.  Especially on the financing part--I went with a cash and credit strategy that I thought would work really well and it did, until it didn't.  Basically, I avoided interest the whole first year by using a series of 0% offers, but I was way slower than I thought I would be (it's a 3300 sq. ft house with hand stained cedar siding, all cedar ceilings, painted spruce walls, and birch floors) and made the house probably bigger than it should have been.  I also bought materials out of order because they were on sale/cheaper not realizing i had a limited amount of space and probably ended up moved building materials sometimes, 6,7 or 8 times which cost me time.  I could go on about all the mistakes I made and despite the $160,000 in credit card debt I was carrying the last few months as I hurried to get my permit closed and secure financing, the house turned out beautifully and I have a mortgage that is barely $200K on a house that would have easily cost $600K+ for someone else to build.  And now, I can easily frame up, roof, and side a wood shed, tiny house, garage etc. by myself with all the tools I ended up buying along the way.

Definitely agree on the fixtures comment.  I have 3.5 baths.  They all have Kohler toilets, ($150/piece), stone tile backsplash and marble vanities that I bought on discount at Wayfair   I framed a built in wood stove, put on cement board, and paid a local guy $1500 cash to cover it in stone (he works for a company that does it and said he would have quoted $7500 for the same job).  This wasn't something I was interested in learning how to do and it was also something I knew could turn out really bad and be really hard to fix if I tried myself.  I also passed on tiling showers and left that to the pros.

Linea_Norway

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Re: Building a house. Good idea?
« Reply #20 on: August 13, 2018, 05:58:50 AM »
About learning to tile. We renovated the bathroom in our previous house and put in a concrete floor with fall to drain and put in tiles on floor and walls, while we never did this before.

The concrete floor with fall was very difficult, as the fluid type of concrete wants to level itself out. And it dries very fast, so you have no time for making mistakes. Eventually my husband divided the floor into parts.

Tiling on the other hand was not very difficult. Just find out how to do it and think through the tile pattern before you put the tiles onto the walls. Buy a diamond tile saw and remember to use those plastic crosses to put in between the tiles. We would easily do it again ourselves.

mxmoney

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Re: Building a house. Good idea?
« Reply #21 on: August 13, 2018, 07:05:33 AM »
Is it generally cheaper to build your own house or buy?

kiwigirls

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Re: Building a house. Good idea?
« Reply #22 on: August 14, 2018, 06:13:20 PM »
PTF - my fire plan involves spending a lot of time in France.

DoNorth

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Re: Building a house. Good idea?
« Reply #23 on: August 15, 2018, 05:56:46 AM »
PTF - my fire plan involves spending a lot of time in France.

If you know what you're doing and have the time, it should be cheaper to do it yourself.  With that in mind, building any house is a major undertaking and isn't a decision I would make lightly.

Rinch

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Re: Building a house. Good idea?
« Reply #24 on: August 15, 2018, 09:00:05 AM »
 
Is it generally cheaper to build your own house or buy?

That is a good question. The answer is I hope so but we'll see.

My criteria for this project was that I had to be able to build the thing and then if life had changed be able to sell up and make all my money back at the end (and ideally a profit). This sounds like a very easy criteria to meet but 1) construction project risk means that final costs are quite uncertain and 2) in France transaction costs are really high (around 10% of sale price) so once you've bought the land and then sold the completed house on the land on it you've got to cover a tonne of transaction fees.

To manage the construction project risk i'm going for a fixed price contract with a single contractor. This way I already know what my house will cost to build and there is not too much potential for any surprises. If you were more tolerant of risk you could act as main contractor yourself and manage all the subcontractors or better still build the whole thing or parts of it yourself. Both of these approaches could save you money but good luck working out how much your build will cost before you've done it.

Buying a plot and building a house actually saves you quite a bit on the transaction costs because you buy the land for, say 200k (in a sought after area) and pay 7.5% notaire fees (15k) then spend another 200k to build a house. The total cost is 415k. Assuming the value of the house you've built is only equal to the value of the land plus the house (400k) then you'd have to pay 430k to buy it (assuming the same 7.5% fees). So you've already saved 15k on fees alone.

Of course waiting at least a year and taking loads of risk to save 15k would be a reckless strategy so you're really hoping that what you've build will be worth far more than what it cost to build it. I've been watching the local market where I'm building and detached family 3-4 bed chalets don't go for less that 570k (plus fees) round here. I estimate my build will come in at around 470k (including all fees) so hopefully I'll have a house worth up to 100k more than I've paid for it and will save some more in fees. Understanding costs and value is clearly a key skill in working out which plot would make the most money. I'm certainly not an expert in this but I've done my best. 

Saving money is certainly part of my motivation but I also get to live in a house that is exactly what I want and get the experience of learning loads about the process.

Rinch

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Re: Building a house. Good idea?
« Reply #25 on: August 15, 2018, 09:07:31 AM »
A few tips I've learned for US based building.  My house was built by a guy I worked with and he acted as part time builder and GC.  Another co worker had a builder do most work and he just helped out.

1) If you hire out work hourly, you MUST, MUST, MUST be on site every second as if these guys are 7th graders and will screw off the moment your back is turned.  In building the house I'm in, my co-worker hired framers hourly.  He'd check in first thing in the morning, go to work, check after work.  It seemed things went slowly.  One day, he checked in first thing in the morning, drove away, parked his car and snuck through the woods to watch.  The guys literally sat around all day, drinking beer and doing zero work.

2) Understand what inspectors want to see and what will impress them.  My best friend is an electrician, but lives too far away to help.  When we built a detached garage, he told me to label every outlet and every light receptical with a number for the wire run.  Next to the circuit panel, put up a diagram with each circuit drawn out with numbers.  This makes the inspector's job wicked easy.  (sorry....lifelong New Englander).  Another trick, he said to use green ground wire nuts for safety ground connections at receptacles.  Although not required, it shows extra care was taken.  I'm sure that plumbing and framing and such has similar tricks.



Great tips. From my own adventures in renovations I can testify how much easier life would have been with a decent wiring diagram and some labelling. I'll definitely add this to my list of requirements on this build. It's the sort of thing that will be easy to get them to agree to put in the contract at the start and would never get done otherwise. 

robartsd

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Re: Building a house. Good idea?
« Reply #26 on: August 15, 2018, 09:20:26 AM »
If you know what you're doing and have the time, it should be cheaper to do it yourself.  With that in mind, building any house is a major undertaking and isn't a decision I would make lightly.
DIY is generally cheaper, but that's only because you're discounting the labor costs. I've always had a dream of designing and building my own home, but it really doesn't look very practical.

Rinch

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Re: Building a house. Good idea?
« Reply #27 on: September 07, 2018, 01:26:21 AM »
I've been exploring the options around mortgages and hit a decision point. I'm not sure if this is a uniquely french thing but our mortgage provider has told us that mortage insurance is obligatory. It turns out that in france you have to take out an insurance policy that pays out in the event of death or incapacity to cover the remainder of the mortgage. If you're a couple then you have the option to take out 50% each or 100% each. You also have some options around the degree of incapacity that would trigger a payout.

It seems a little bit murky to me becuase, as far as I the bank that is lending you the mortgage expects you to take out the insurance with whoever they suggest. So there is a bit of a smell that they lure you in with a cheap interest rate and then try an screw you with an expensive life insurance product. Legally, they cant compell you to use their provider but they don't have to offer the same rate if you don't so there's a general sense that if you try and shop around then things will be much more complicated for you and your loan will not get approved. Mortgage approvals here are much more old fashioned with an indvidual decision made by the local bank manager rather than a centralised system so there's lots of scope for holding things up if you don't take their insurance.

This raises several questions for me. 1) I've never really thought about life insurance but I have a young kid and I can certainly see the appeal of knowing that even in the event of disaster our housing costs would be met. I really hate the fact that I'm being forced to take out an insurance product without much choice and that I will be locked in to paying for something that hopefully I'll never use. Up till now I've always taken the view that having nothing but the absolute minimum insurance is a key part of being able to save money.

2.) If I try and think through scenarios it's hard to compare the value of protecting my family from being destitute after my untimely death with a monthly payment. How exactly are you supposed to weigh up these two things? If we go for the maximum (both of us insured at 100% of mortgage value) we're pretty secure, but paying a significant monthly payment which could otherwise be going into savings.

3.) Saving for FIRE is a lot like you're own personal insurance policy. By my calculations we're probably around 50% to a fairly modest version of FIRE. Over the next 10 years I expect we'll get there unless we really cut back on work or embark on some pretty serious lifestyle inflation. This means that any insurance we took out would start being pretty valuable, but in around 10 years time it wouldn't make too much difference as we'd be relatively close to FI anyway.

After some reflection I'm leaning towards taking the 50% each insurance. Any thoughts? 



DoNorth

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Re: Building a house. Good idea?
« Reply #28 on: September 07, 2018, 02:29:43 AM »
yes, labor is definitely cheaper--in my case, I was able to acquire many of my materials at much cheaper prices by using my military discount at HD and Lowes, by going into Canada and taking advantage of the exhange rate and by shopping sales for fixtures, knobs, grates, and other basic materials. 

If you know what you're doing and have the time, it should be cheaper to do it yourself.  With that in mind, building any house is a major undertaking and isn't a decision I would make lightly.
DIY is generally cheaper, but that's only because you're discounting the labor costs. I've always had a dream of designing and building my own home, but it really doesn't look very practical.

Rinch

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Re: Building a house. Good idea?
« Reply #29 on: October 30, 2018, 08:54:10 AM »
Time for an update on this. At a Notaire's (french lawyer) office last week we became the official landowners of our site. There is now a patch of grass in the french alps which belongs to us. Worst case from here on in I could always go and live in a tent or something. This means we can now finalise all the other contracts and start building things. We already have planning permission, we received outline permission back in July and then after displaying a board for two months with no objections we were good to go so completed the sale.

We are now moving to the exciting bit where we get to wander round in welly boots and hardhats while people who know how to build houses try and stop us from making daft decisions. Hopefully we won't screw this up!

Prior to completing the sale we agreed a mortgage with a local bank. Mortgages in France involve lots of in person meetings, emails and phone calls so we became well acquainted with our advisor in the run up to getting things done. This process culminated in us handing over a tonne of money for the deposit. This money seems to have disappeared in to the ether waiting to be called on to pay future bills. From here on in we pass any invoices to the bank and they will pay them for us. The mortgage was calculated based on the quotes we had available for various parts of the project. Anything that we hadn't included will have to be paid by us.

The first cost that we hadn't anticipated arrived a few hours after we signed for the land. It turns out that the marking out of the site must be done by an accredited surveyor (Géomètre), on reflection this is pretty obvious, it's clearly important to build the thing in the right place but I didn't know it wasn't included in the work of the construction company or the groundworks contractor (and I thought I was well organised).   Anyway this adds about 1k to the project cost. Hopefully there won't be too many of these. It's a little bit unnerving when you've asked several times what all the costs are and been reassured that everything is accounted for only to find another one straight off the bat.   

Before we can start work we have a bunch of jobs to get done which i'll include in case anyone is interested in the detail of how you build a house in France:
-Temporary electricity, water and sewage connections arranged (all underway)
-Get the marking out done (have received a quote)
-Waiting the results of the concrete study (Etude beton), organised and paid for by the main contractor to design foundations
-Sign final agreement with ground works contractor (we already have a quote)
-Submit formal notice to the mayors office that work is starting on site (in person obviously, since this is France)

We also have to spec out all the fixtures, fittings and finishes but that doesn't need to be done just yet. They can get on with the foundations and structure while we think about what tiles to have.


 

Rinch

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Re: Building a house. Good idea?
« Reply #30 on: October 30, 2018, 09:02:00 AM »
And another thing.

This whole business is playing havoc with my spread sheet. How are you supposed to value an ongoing construction project? I can list the land as an asset as I know what that is worth since I just bought it. The debt on the mortgage can be subtracted from my assets. When the whole thing is completed I can get a valuation done by a real estate agent to work out the equity but between now and then my networth tracking is going to be all over the place. I need to work out how I'm going to estimate the project value on a fair but conservative basis. Maybe I can assume that value is equal to current spend to date?



MrSal

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Re: Building a house. Good idea?
« Reply #31 on: October 30, 2018, 10:16:44 AM »
Haven't updated this for a while so I thought I'd add that this is happening! We submitted our planning application around mid-may. This being a certain western European country with a proud history of bureaucracy, planning applications typically take two months to process and if they give you an ok then you have to wait another three months with a sign up to give people the opportunity to object. I imagine they review any objections and if they are substantial it could take longer. With a fair wind we will probably have the final go ahead by late autumn.

After about a month the planning office asked for more information on our proposed materials and colours. I don't know if this resets the clock or just pauses it while we responded. In any case have now furnished them with an extra page of photos of white rendered walls and light wood and am back to waiting for them to tell me if they are going to give it the nod.
Over the summer we have to sort out the financing and the internal design while we wait for the final confirmation. More on these later.

 

Do you live in Portugal? :D because the bureaucracy side seems pretty familiar :D ... it usually takes 2 years to build around here between permits, plans and construction.

MrSal

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Re: Building a house. Good idea?
« Reply #32 on: October 30, 2018, 10:27:14 AM »
We now have to display a sign on the site for two months to give people the right to object. If no one objects we could start building in as little as two months, assuming we can sort out everything else by then. If someone does object then we could end up in some sort of tribunal. I'm not too sure how this works but hopefully it won't come to that.

The letter I got says that failure to display the sign properly could get you a 1500 EUR fine.  We will need the time to sort out everything else so no chance of starting work before two months have passed anyway. 

These two things alone would be enough to make me go and try to make money elsewhere in some other way.  I think you're taking on an insane amount of risk with this project.

Not really. Welcome to Europe. It's pretty much like this all around.

It seems OP is in France but Portugal is the same, and I bet Spain and Italy the same.

You always need to "announce" and put it in display your intentions so anyone can object.

For example also, when you sign contract of promisory note for the sale of house, you need to give 15 days before closing, because the borough has option rights to the land - this enables someone to match the offer and they have the right to buy it off of you instead of the actual buyer. If you don't wait the 14 days, the contract can be null and you are in a world of trouble - especially the buyer.

I've been exploring the options around mortgages and hit a decision point. I'm not sure if this is a uniquely french thing but our mortgage provider has told us that mortage insurance is obligatory. It turns out that in france you have to take out an insurance policy that pays out in the event of death or incapacity to cover the remainder of the mortgage. If you're a couple then you have the option to take out 50% each or 100% each. You also have some options around the degree of incapacity that would trigger a payout.

It seems a little bit murky to me becuase, as far as I the bank that is lending you the mortgage expects you to take out the insurance with whoever they suggest. So there is a bit of a smell that they lure you in with a cheap interest rate and then try an screw you with an expensive life insurance product. Legally, they cant compell you to use their provider but they don't have to offer the same rate if you don't so there's a general sense that if you try and shop around then things will be much more complicated for you and your loan will not get approved. Mortgage approvals here are much more old fashioned with an indvidual decision made by the local bank manager rather than a centralised system so there's lots of scope for holding things up if you don't take their insurance.

This raises several questions for me. 1) I've never really thought about life insurance but I have a young kid and I can certainly see the appeal of knowing that even in the event of disaster our housing costs would be met. I really hate the fact that I'm being forced to take out an insurance product without much choice and that I will be locked in to paying for something that hopefully I'll never use. Up till now I've always taken the view that having nothing but the absolute minimum insurance is a key part of being able to save money.

2.) If I try and think through scenarios it's hard to compare the value of protecting my family from being destitute after my untimely death with a monthly payment. How exactly are you supposed to weigh up these two things? If we go for the maximum (both of us insured at 100% of mortgage value) we're pretty secure, but paying a significant monthly payment which could otherwise be going into savings.

3.) Saving for FIRE is a lot like you're own personal insurance policy. By my calculations we're probably around 50% to a fairly modest version of FIRE. Over the next 10 years I expect we'll get there unless we really cut back on work or embark on some pretty serious lifestyle inflation. This means that any insurance we took out would start being pretty valuable, but in around 10 years time it wouldn't make too much difference as we'd be relatively close to FI anyway.

After some reflection I'm leaning towards taking the 50% each insurance. Any thoughts?

Yes life insurance is mandatory for at least one of the co signers of loan. Go with the insurer they provide, you can transfer it away later easily without implication to your rates.

Also, and this is something a lot of people forget, call the insurance company EVERY YEAR to update the principal insured. They don't update this most times. Say, you started with a 300K mortgage then that is what you are insured with, however, 5 years later you only have 200K owed. Make sure to call and tell them to insure only 200K instead of 300K.

Also, do not forget to inspect everything! If this is typical mediterranean construction, make sure all the foundation is insulated from ground. Concrete acts as a wick, you don't want condensation forming through capillary action.

Also, most construction is done with concrete and really thick brick ... the construction workers then in order to fit utilities they open trenches in the brick for electrical and plumbing and then mortar on top.

If it's on your budget don't do this. Yes have the whole brick house, however I would then put some studs, probably steel framing since it's cheaper, and have everything else built with drywall. It gives you an easier time in the future for possible updates and or repairs. Don't forgo insulation as well. XPS or mineral wool on the outside works great in order to take advantage of the mass provided by the concrete.
« Last Edit: October 30, 2018, 10:39:48 AM by MrSal »

robartsd

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Re: Building a house. Good idea?
« Reply #33 on: October 30, 2018, 11:26:15 AM »
Any way you estimate the value of your project, there is likely to be quite an adjustment at the time of the completion appraisal. As unfinished construction depreciates rapidly, you'd almost certainly take a huge loss if you had to abandon the project midway, so valuing the project as spend to date would not reflect your situation very well. Projects like yours also tend to cost more than they could sell for, so even in the likely case that you complete the project you may find that it is a net loss at completion making your personal balance sheet jump downward if you had valued the project as spend to date up to that point. I'd be inclined to underestimate the value of the construction (zero for absolute simplicity) such that the completion of the project would have a positive impact on my personal balance sheet.

Here's a guide for valuing an unfinished house targeted at buyers: https://homeguides.sfgate.com/value-unfinished-house-88983.html

For a sophisticated current value I might use max(0.8*estimated value of completed project - 1.2*estimate of costs to finish project, value of land) as a reasonably conservative estimate.

Rinch

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Re: Building a house. Good idea?
« Reply #34 on: November 01, 2018, 03:57:26 AM »

Also, and this is something a lot of people forget, call the insurance company EVERY YEAR to update the principal insured. They don't update this most times. Say, you started with a 300K mortgage then that is what you are insured with, however, 5 years later you only have 200K owed. Make sure to call and tell them to insure only 200K instead of 300K.

Also, do not forget to inspect everything! If this is typical mediterranean construction, make sure all the foundation is insulated from ground. Concrete acts as a wick, you don't want condensation forming through capillary action.

Also, most construction is done with concrete and really thick brick ... the construction workers then in order to fit utilities they open trenches in the brick for electrical and plumbing and then mortar on top.

If it's on your budget don't do this. Yes have the whole brick house, however I would then put some studs, probably steel framing since it's cheaper, and have everything else built with drywall. It gives you an easier time in the future for possible updates and or repairs. Don't forgo insulation as well. XPS or mineral wool on the outside works great in order to take advantage of the mass provided by the concrete.

Thanks for the tips MrSal, I had assumed that the insurance would automatically take into account the remaining principal. I will definitely follow this up. It's bad enough paying for expensive insurance without paying even more than you have to.

I am currently working at 80% so I should be able to be a hand on client and I will make sure I keep an eye on things to watch our for cowboy behaviour.

Our building method has two types of elements. The blockwork will be constructed from wood fibre insulated blocks manufactured by an Italian company called isotex (https://en.blocchiisotex.com/). You slot the blocks together and then fill all the voids with concrete to provide the structural strength. It's supposed to provide better insulation, allow passage of water vapour to reduce condensation while still achieving high levels of air tightness. The rest of the house is a system house type where factory made structural integrated and insulated timber frame panels are slotted together on site to form the frame. We will indeed have studs with drywall/plaster board will be mounted over the top. All the electrics and plumbing will run in the gap so we should be able to update things without tearing apart the structure.

I did quite a bit of thinking about what type of construction I wanted and when with this because the factory made panel approach gives really good airtightness and it's much easier to control quality in a factory with everything cut by machines and assembled in a controlled environment than banged together by a couple of guys who are keen to leave for the weekend. You can get even more sophisticated factory build products where cables, pipes and finishes are factory installed too but they seem to be quite expensive.


Rinch

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Re: Building a house. Good idea?
« Reply #35 on: November 01, 2018, 04:12:19 AM »
Any way you estimate the value of your project, there is likely to be quite an adjustment at the time of the completion appraisal. As unfinished construction depreciates rapidly, you'd almost certainly take a huge loss if you had to abandon the project midway, so valuing the project as spend to date would not reflect your situation very well. Projects like yours also tend to cost more than they could sell for, so even in the likely case that you complete the project you may find that it is a net loss at completion making your personal balance sheet jump downward if you had valued the project as spend to date up to that point. I'd be inclined to underestimate the value of the construction (zero for absolute simplicity) such that the completion of the project would have a positive impact on my personal balance sheet.

Here's a guide for valuing an unfinished house targeted at buyers: https://homeguides.sfgate.com/value-unfinished-house-88983.html

For a sophisticated current value I might use max(0.8*estimated value of completed project - 1.2*estimate of costs to finish project, value of land) as a reasonably conservative estimate.

Thanks for that robartssd that is really helpful. After thinking about this I think you're right any money that gets spent on construction is probably lost if the project was to fail for some reason so it doesn't really make sense to accrue money I'm spending as an asset. I think it is reasonable to consider the land as an asset but I won't account for any any value of the construction until I get a valuation from an agent once the project is done. So for the next 9 months the net worth figure will be taking a hit but will hopefully recover once the project gets finished. This is probably a good reflection of the risk I'm taking on.

I hope you're wrong about the project costing more than the value. I've done as much homework as I can on this and believe that the completed house should be worth more based on my understanding of what similar properties go for in this area but I have to admit it is a distinct possibility that my wishful thinking and cost overruns could push the project into the red. On verra as we say round here.

zolotiyeruki

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Re: Building a house. Good idea?
« Reply #36 on: November 01, 2018, 05:25:58 AM »
Our building method has two types of elements. The blockwork will be constructed from wood fibre insulated blocks manufactured by an Italian company called isotex (https://en.blocchiisotex.com/). You slot the blocks together and then fill all the voids with concrete to provide the structural strength. It's supposed to provide better insulation, allow passage of water vapour to reduce condensation while still achieving high levels of air tightness. The rest of the house is a system house type where factory made structural integrated and insulated timber frame panels are slotted together on site to form the frame. We will indeed have studs with drywall/plaster board will be mounted over the top. All the electrics and plumbing will run in the gap so we should be able to update things without tearing apart the structure.
  If you're interested, I've been following a couple on Youtube who are  building their own home with very similar techniques--Insulated Concrete Forms for the basement walls, timber frame and SIPs for the main structure.  They're doing a lot of the work themselves, and have shared a lot of the little details, tips, and things to watch out for along the way.  Their channel is here: https://www.youtube.com/channel/UChhBsM9K_Bc9a_YTK7UUlnQ

robartsd

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Re: Building a house. Good idea?
« Reply #37 on: November 01, 2018, 12:36:05 PM »
I hope you're wrong about the project costing more than the value. I've done as much homework as I can on this and believe that the completed house should be worth more based on my understanding of what similar properties go for in this area but I have to admit it is a distinct possibility that my wishful thinking and cost overruns could push the project into the red. On verra as we say round here.
There are lots of reason that the finished owner-builder project can end up with a market value that is less than the cost to build. Many of these have to deal with poor planning on the part of the builder. Some have more to do with the owner's customization of the project in ways that add costs more than they increase market value. Of course any project that takes several months or longer is subject to market fluctuation as it proceeds. Sounds like you have a pretty good handle on the risks. I look forward to hearing more about how it goes.

Car Jack

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Re: Building a house. Good idea?
« Reply #38 on: November 01, 2018, 12:51:50 PM »
Just another reason that you have to watch your contractors like they're 7th graders.  Short cuts.  At my house, the excavators had tons of boulders and tree stumps to get rid of.  They buried them in places they should not have been buried.  Like under a prepared area that was "ready" to become a garage or barn.  That doesn't work because stumps decay and when they do, sink holes start decades later.  And if you go to build a garage, around my parts, you have to dig to undisturbed ground and put in footings first, then concrete walls, then fill, then pour the slab.  Guess what was in that hole excavated to make my garage?  Boulders and stumps.  An extra couple grand in cost for moving the boulders (they're piled near the garage) and removing the stumps.  Had the previous owner been on site, that would never have happened.

waltworks

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Re: Building a house. Good idea?
« Reply #39 on: November 22, 2018, 11:11:50 AM »
Can you really build a house for $200k in the Alps? I live in a ski town in the US and there's no way (even with cheap finishes) that you could go under about $250/square foot to build anything livable unless you DIY'd basically everything. Even then I think you'd struggle to get to the ~$100/square foot cost you are estimating here (I'm assuming you are building a ~2000 square foot house).

The rule of thumb in the US is that you should assume all construction will cost 20% more than the initial estimate, and fixed price construction is basically unheard of. Maybe things are very different in France.

Good luck.

-W

Rinch

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Re: Building a house. Good idea?
« Reply #40 on: November 23, 2018, 12:48:42 AM »
Can you really build a house for $200k in the Alps? I live in a ski town in the US and there's no way (even with cheap finishes) that you could go under about $250/square foot to build anything livable unless you DIY'd basically everything. Even then I think you'd struggle to get to the ~$100/square foot cost you are estimating here (I'm assuming you are building a ~2000 square foot house).

The rule of thumb in the US is that you should assume all construction will cost 20% more than the initial estimate, and fixed price construction is basically unheard of. Maybe things are very different in France.

I think things are a bit different but not as much as it might have appeared. Firstly, houses seem to be a bit smaller. Our house has a "habitable" floor area of 120m2 (1200ft2). Garages and stairwells don't count towards the habitable area we have a pretty big garage included in the footprint. This is deliberately at the smaller end of the scale for family houses. I'd rather have a bit less space and a bit less mortgage.

The total build cost is 240k, I might have said 200k when I was giving ballpark figures earlier. The cost works out as 185 EUR/ft2 or 211 USD/ft2 so not a million miles away from your numbers. The finish on this will be walls that are "ready to paint", we'll still need to do our own painting, add built in cupboards and any other fit out.

The fixed price contracts you can get here certainly do reduce risk for buyers. I don't think we'd be doing this if we were taking all the construction risk.