Opinions wanted: Buying land and building a house vs. buying a pre-built home

Published January 4, 2015   Posted in How to Think

Unless you are new here, you probably know that my goal is to officially retire by 40 and spend the rest of my life enjoying jobless bliss and never-ending happiness.  We’re doing this with big-time savings and living frugally in Tucson, Arizona – one of the most inexpensive places to live in the United States.  

Sedona, AZ

From our last trip up to Sedona

After retirement, we plan on moving up to Sedona, Arizona – Sedona is nestled within red rock country in northern Arizona.  It is a beautiful little town that attracts tourists throughout the year and is rich in hiking opportunities and generally getting more in touch with nature.  We make yearly visits to both vacation and, now, to check out real estate in the area for our eventual move into the area.

Sedona is not cheap, but there are reasonably-priced homes scattered throughout the city area.  The better your view of the red rocks, the more you will spend to live there (real estate 101, I know!).  To my wife and I, having a nice view is far more important than a big house.

We are considering two options:

1.  Buy a nice plot of land and build a small home – I’ll be honest, buying land and building our own home is completely new to both of us.  Our thought is this would allow us to more effectively prioritize a view of the red rocks by dropping a little more cash for the right plot of land and, at least in theory, spending less on a smaller home. And by “smaller home”, we are talking pretty damn small – in the neighborhood of 1000 sqft, max.  We would be happy in a 750 sqft home.

2.  Buy a pre-built home with some view – This would be the more traditional route and would allow us to find the perfect home in the perfect spot for our budget.  Of course, we primarily get what we buy into with a pre-built home. Renovations to the home itself are possible, but we can’t change the view to any significant degree.  We get what we get, and we may be holding out longer for the right home if we buy a pre-built unit.

It all comes down to this: Assuming the same plot of land between both scenarios (building a home vs. buying a pre-built home), we need to figure out which one is more cost effective.  Keep in mind that in option 1, we do NOT intend on physically building the house ourselves.  That’s not what we are skilled at, and it would probably wind up costing us more in the long run after we hire contractors and electricians to fix our stupid mistakes.

My wife and I are torn between both options; we are not sure which one provides us with a better opportunity for the view that we want, a smallish house and a relatively modest purchase price.  We’d like to spend no more than a couple hundred thousand, max, for everything.

If there are any real estate experts out there, your opinions are welcome.  Is buying land and having a home built a viable option to save cash, or would this method risk pushing us over our comfortable purchasing budget due to unforeseen expenses?

Curious in Tucson.

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Comments

6 responses to “Opinions wanted: Buying land and building a house vs. buying a pre-built home”

  1. Allan says:

    Hi Steve,

    That’s a good question. If you buy a land and hand-pick all the contractors by yourself, I think you could get a house of better quality with the view you want. If you take the time to learn about how to build a house, hire a good architect to either draw your plans or modify existing ones to suit your needs, I guess you could end up with a better product at a good price. But read as much as you can on the subject, go see how they build homes, talk to contractors and make sure to budget at least a 15-20% extra because there are always things that you haven’t thought of.

    Before buying a piece of land, making a soil analysis and making sure that the municipality will let you build what you want there is always a good idea. Where will you take your water from? Will you need to dig a well? Is the water potable and how deep is the phreatic in the neighbourhood? This can affect your costs by a lot. Also inquire about what can be built on the surrounding lands… if they build a condo tower in front of you you won’t be happy. And if you start digging for the basement and find a huge rock that you’ll have to blow you won’t be happy either… this can cost 15-30k here in Canada.

    My experience is that most self-builders don’t plan well, don’t do enough due diligence before buying a land or starting the construction and underestimate the costs of building a house. They often forget major things in their planning and things rarely goes 100% as plannned anyways.

    Also, a bank won’t advance you funds until the work has progressed. So you have to build a part with your own funds and then call an inspection. Then they will give you some money. Here in Canada we don’t finance the land purchase with a mortgage at first. So you normally purchase the land with an interimary loan and when the construction will be over they will close the loan and include it in the mortgage.

    Notice that there are also great prefab or modular homes on the market nowadays. They will deliver the house you want on your land and zip it there for you. It’s much less stress and these houses look great and usually are of better quality. It is also harder to forget something big and you can customize it mostly the way you want.

    Anyhow, have fun planning your dream!

  2. Donna Hyder says:

    I have built about 10 or so of my own homes. I have purchased about the same amount that were pre built. I will always spend more building my own than purchasing one already built. Why? I want this and I want that when I build and the house turns out fantastic and I make a lot of money on them. But I wanted cement stained counter tops and arched carved wood doors etc and that is money. I would buy a house that was very nice but did not have all these specialty items in it so even though it was high end – it would still be less HOWEVER….
    I think that when I build I get just what I want and when I buy I do not so I eventually end up restricting the house and it turns out nice and I make money on it but it is never just right.
    I will tell you that you should know exactly what you want when you start to build and do not get half way into a house building and then choose to have hand cut wood plank flooring put in instead of the tile. etc. design it ..know your products and select them .. find a builder and make sure that he will build to your specks and then be on the job with him while he builds to make sure that he is doing it right. Know your land. have a geo guy analyze it – what will the land do in flood type rain? there is a lot to know about building that I would never trust another person to do without knowing how it should be done.

  3. Always check for past works of your contractors to see if they are good. You will see the quality and will make better decision.

  4. Brian says:

    Theres a lot to consider when looking into land vs. already built home. I prefer buying land and building a home, even though it may cost more, because then you can get exactly what you want.

    • Steve says:

      I appreciate that, Brian. Our plans have changed since I wrote this blog post, though, so we won’t be looking into this any further. But in general, I agree – whenever possible, build. It means you get exactly what you want…and hopefully *where* you want it! 🙂

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