Author Topic: Building a home- bad idea?  (Read 3973 times)

KS

  • Stubble
  • **
  • Posts: 207
Building a home- bad idea?
« on: May 05, 2014, 11:21:15 AM »
Sorry if this is a repeat, feel free to point me to another thread if so. I did a search and just came up with two short threads from 2012 that had some helpful advice but much of it related to market conditions at the time, which I think have changed a lot (at least in my area!)

Just curious to get opinions on building a home from scratch, is it always a terrible, terrible idea? Any easy rules of thumb to figure out cost per square foot for building something? What kinds of things should we be thinking about and asking before considering it, that we may not think of on our own? Any other advice? We would have to hire out most of the work so this is not from a fully DIY perspective, although if our professionals were willing to accept it, we'd be happy to pitch in on whatever we can to help cut labor costs.

Backstory: been slowly and steadily house hunting for quite a while in a high COL area where bidding wars and all-cash offers are common, even on homes in the $1-2million+ price range. That's above what we are willing to spend, but gives a picture of the market we're up against, since of course the competition is equally if not more fierce in the lower budget ranges. We're pretty fed up with the limited inventory and absurd pricing for what you get, so when yesterday we stumbled across a plot of land for sale in a great area with killer views, it did get us to thinking.

There are pretty major permit hurdles to clear in this city so unless we're confident about our chances of success we would not make an offer on this place and risk getting saddled with an expensive chunk of dirt we can't do anything useful with. But assuming we could get that through, based on the price per sqft numbers we've heard so far, the total cost of doing this seems like it might come in about equal or just a little above buying an existing home, but would eliminate most of the competition who would be less willing to put up with the hassles involved. And we would theoretically get exactly the house we want and could design it with our current and future selves in mind so we could live in it indefinitely rather than the obscenely priced "starter homes" we've been seeing, most of which are awkwardly laid out, need a ton of major expensive work, and/or barely bigger than our current apartment.

Can this ever work out in favor of building? The other threads mostly seemed to advise against it...

(And in case anyone is curious or planning to bring it up, we have definitely also discussed being permanent renters given the housing market, but from what I hear the competition for rentals is pretty brutal as well. We have a pretty great deal on our current little apartment since we've lived there so long but I think we are rapidly approaching our limit of how long we will be willing to stay there for a few reasons.)

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8949
  • Registered member
Re: Building a home- bad idea?
« Reply #1 on: May 05, 2014, 11:35:23 AM »
Short story this is super local.  Ask people who have recently build homes for price per sqft, or try to get quotes.  Compare to local "used" housing prices.
« Last Edit: May 05, 2014, 12:03:13 PM by dragoncar »

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5158
Re: Building a home- bad idea?
« Reply #2 on: May 05, 2014, 11:51:31 AM »
If the land was easy to develop and correctly priced, a small builder would likely pick it up for a spec build.

In your shoes, I would talk to the listing agent to see what they know and are willing to tell you.  Then I would talk to the City to see what it would take to develop and build on the site.  If I were not discouraged at that point, I would see if there are any new homes going up in the area and call the builders to get an idea of price per square foot to build what you want. 

In high cost areas a developed lot will typically comprise 25 to 35 percent of the cost to build.   

MsSindy

  • Pencil Stache
  • ****
  • Posts: 535
  • Age: 53
  • Location: Philly Burbs
Re: Building a home- bad idea?
« Reply #3 on: May 05, 2014, 02:06:18 PM »
Building your own home....oh, where do I start?  We've been building our home for the last 10+ years, but that is because we are doing everything ourselves - probably the worst decision that we've made.  But, on to your situation.  First, a GC is not going to let you "pitch-in" for a reduction in cost, if anything they will add on because you'll be in their way.  Fees are very location-specific, so you need to call around and see what the going price is per sq ft, and ask what that includes (granite or tile counter tops, hardwood or tile floors, hardscape, softscape, deck, porch, permits, architect designs, etc.).

Unless you are construction savvy (I mean structurally, not just, Hey, I've laid tile before, I know construction!), you will be relying a lot on your Builder, so make sure you go with someone who has a stellar reputation and is not the cheapest.  Be prepared for change orders - what ever they quote you, be prepared for 10 - 20% more - especially if you need to pull in any utilities, there are always surprises.  Be prepared that it is going to take longer than expected, especially depending on how crazy the weather is in your area.  Also, you'll more than likely have to get a construction loan which is at a higher rate than a normal mortgage and then convert it once you get your permit for occupancy - so plan on more carrying costs with the construction loan (and additional points).

So, it's unclear if you plan on being the GC or not - if you think you are, think again.  You need to know how a house is put together and where one trade discipline starts and stops - you need to know if the plumbers lay the pipe at the right pitch, you need to check that the framers build to your plan to the inch or you'll have problems, you need to know if they use the right weather wrapping when installing your windows, etc., etc.  The important thing is not knowing how to build a house, but how to recognize when someone is fucking up.

My DH has a lot of construction experience and exceptional mechanical aptitude and he was constantly after the trade guys (he was a trade guy!) to do their jobs, show up when they said, and build to code and spec - it was fun and frustrating all at the same time!  But unless you're particularly construction savvy, I'd strongly suggest against being your own GC.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5707
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Building a home- bad idea?
« Reply #4 on: May 05, 2014, 02:40:19 PM »
My number one question is why is the land still available and in comparison what did the land around it sell for? if your over paying for the land your already starting out in the hole. Despite what many think too building costs have gone up not down since all the manufacturers of supplies  have had time to work through eliminating inventories and creating price increases. Also, a lot of homes are being built cheap and with less. One example in many areas a tub is extra. I see very few opportunities where in buiding right now your not already in the hole BUT i am sure there are some scenarios it still exists. Good luck but do your homework!!

KS

  • Stubble
  • **
  • Posts: 207
Re: Building a home- bad idea?
« Reply #5 on: May 05, 2014, 03:28:17 PM »
Thanks all! Very helpful so far. A little more info:

We've asked several friends and acquaintances who are in one way or another involved with contracting or construction, as well as got a random general quote from a builder at an art fair, and our realtor also checked in with a builder she knows, so we do at least have a very rough average of price per square foot to consider now. (Seems to average around $200-300 around here btw, if anyone was curious. Of course can use ultra cheap materials and go a little bit lower, or also go much higher than that, lots of people here have very expensive taste and the money to burn)

We did coincidentally run into the owner of the property when we were looking at it, so we talked to him for a long time and got quite a lot of info which was very helpful. He's the one who gave us the heads up about the crazy permitting issues in the city, so looking into that is priority number one before we even remotely consider an offer. Property has only just gone on the market, so I'm not too worried yet that it's unwanted for a reason... as Another Reader said if it's actually a great deal then probably a small developer will snag it before we get a chance to decide.

Definitely NOT planning to be our own GC if we actually took this plunge, we know our limitations and we are not knowledgeable enough for that. Especially since much of the bay area is hilly, home layouts often have to be more creative to make the best use of the land and be structurally sound. Having to have it built rather than having the skills to do it ourselves is a huge part of why I figured it could turn out to be just as costly or more so than buying an existing place. That's good to know about construction loan rates too, I had wondered about that.

Really appreciate all the advice, the whole concept of building a place hadn't even been on our radar until this weekend so we're still feeling it out to determine whether it should stay off our radar or is worth keeping as an option!

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5158
Re: Building a home- bad idea?
« Reply #6 on: May 05, 2014, 03:32:53 PM »
If you are in the SF Bay Area, plan on $300 per square foot.  If there is any profit in building a spec house, it will go quickly.

You can get a decent house here well under $1MM if you are willing to compromise on location and commute.  Where are your workplaces located?

waltworks

  • Magnum Stache
  • ******
  • Posts: 3511
Re: Building a home- bad idea?
« Reply #7 on: May 05, 2014, 07:01:23 PM »
It will suck away all your money and eat your soul as well. Unless you are an architect or big-time home geek-out type, stay far away. How "brutal" is brutal when it comes to rentals? Everything I've read about the bay area says that while rents are high - home prices are crazy high completely out of proportion.

-W

Rural

  • Magnum Stache
  • ******
  • Posts: 4876
Re: Building a home- bad idea?
« Reply #8 on: May 05, 2014, 07:09:52 PM »
It's worked out wonderfully for us, but I think we're big-time home geek-out types. :-)

We built almost entirely ourselves, not as a DIY GC but DIY everything. But we are definitely not in a city. I think that changes the whole ball game.

KS

  • Stubble
  • **
  • Posts: 207
Re: Building a home- bad idea?
« Reply #9 on: May 05, 2014, 07:35:27 PM »
Yes, if I'm being completely honest we are probably too picky about location... and also made the mistake of falling in love with an area that was still within reach when we started looking, but rapidly skyrocketed and we're having trouble letting go of the idea we might still be able to live there. That being said, we also kind of figure since the rent vs. buy calculations don't always favor buying out here, we only want to take the leap into home-ownership if we can do so in an area we feel strongly enough about to potentially stay forever. Husband commutes to Palo Alto, I currently head to Fremont but I'm in a field where I'm more likely to change jobs/location so we generally take his commute into consideration first, and then also aim for somewhere convenient to the main hubs of my industry. (Which has a few companies on the east side of the bay but is primarily on the peninsula side further up toward SF) Without moving to East Palo Alto that means both our commutes will generally be a minimum of 30 min to get into the neighborhoods that occasionally have listings in our price range. Both of us have done longer and shorter commutes and have found it makes a huge difference in our lives so that's high on our priority list. Some other stuff we could probably compromise on but we already have a pretty short list of "must haves" and "must not haves" at this point. But part of why we've been so picky is our rent now is so far below any mortgage we'll be looking at, it's hard for us to justify making the jump if the place doesn't check at least our most basic boxes. It's not really a bad situation to be in though, at least in the meantime we get to keep building our stash!

Quote
It will suck away all your money and eat your soul as well

Quote
It's worked out wonderfully for us, but I think we're big-time home geek-out types. :-)

I like the contrast in advice here. :)  We're going to follow through on finding out about the permit process anyway just so we know for future reference and then see from there. I think most likely it will end up being a no-go for us, but it's interesting to dream about the fun side of it!

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8949
  • Registered member
Re: Building a home- bad idea?
« Reply #10 on: May 05, 2014, 10:16:51 PM »
Without moving to East Palo Alto

Maybe you can explain what's wrong with EPA.  I know it has higher crime and bad schools.  But what makes these problems structural?  In other words, is there something about EPA that just won't ever be gentrified? (example: large public housing projects).  I'm just really curious why a location that is functionally in Palo Alto doesn't get gentrified immediately.

KS

  • Stubble
  • **
  • Posts: 207
Re: Building a home- bad idea?
« Reply #11 on: May 06, 2014, 09:35:43 AM »
Quote
I'm just really curious why a location that is functionally in Palo Alto doesn't get gentrified immediately.

I've been wondering the same thing myself! Also, in some areas "EPA" and "regular PA" are right next to each other... I don't know what people think is keeping the criminals on their side of the line. If anything I'd think they'd be more likely to try and burgle the folks on the nicer side of it. (Although if I understand correctly, a lot of the issue is more related to gang crime than anything else over there.)

I do think there is a good chance the area will improve over time, and it would potentially be a good place to invest in now while it's still grungy. East Menlo Park as well, especially now that Facebook moved over there. But I'm also a little cautious about making real estate decisions that count on Facebook staying popular for many years... Although I guess it really just has to be long enough to bring the area up, then even if FB dies something similar would likely move in to replace it.

That being said, real estate in the bay area has been at a premium for quite some time now and that area still hasn't been gentrified yet... so it's hard to say what it will take to make that happen. Like you say maybe there are housing projects or something that are keeping it as it is, I'm not too sure.
« Last Edit: May 06, 2014, 09:37:36 AM by KS »

KS

  • Stubble
  • **
  • Posts: 207
Re: Building a home- bad idea?
« Reply #12 on: May 10, 2014, 05:12:29 PM »
Was curious about dragoncar's question on EPA so did a little light googling... fun facts: in 1992 EPA was the murder capital of America. Also, the movie Dangerous Minds was based on the story of kids bussed from EPA to a wealthier area school in Belmont. Who knew? But anyway it does sound like crime rate is way, way down since then, and now is more comparable to any other large-ish city, and not even in the top 5 for the bay area. It is still a very mixed bag over there though, and much of the city (which is completely separate and not in any way tied to Palo Alto aside from name) is pretty run down.

Also as an update to my original post, we looked into the permit issues and there were some major deal breakers so we're not considering that plot anymore. But thank you for all the advice, it's been very helpful to now feel much better informed to evaluate our options in case any other promising land comes on the market in the future!

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8949
  • Registered member
Re: Building a home- bad idea?
« Reply #13 on: May 10, 2014, 11:06:05 PM »
Was curious about dragoncar's question on EPA so did a little light googling... fun facts: in 1992 EPA was the murder capital of America. Also, the movie Dangerous Minds was based on the story of kids bussed from EPA to a wealthier area school in Belmont. Who knew? But anyway it does sound like crime rate is way, way down since then, and now is more comparable to any other large-ish city, and not even in the top 5 for the bay area. It is still a very mixed bag over there though, and much of the city (which is completely separate and not in any way tied to Palo Alto aside from name) is pretty run down.

Also as an update to my original post, we looked into the permit issues and there were some major deal breakers so we're not considering that plot anymore. But thank you for all the advice, it's been very helpful to now feel much better informed to evaluate our options in case any other promising land comes on the market in the future!

Maybe It is higher flooding risk also due to being closer to the bay?