Considering a house is probably the most valuable investment you will ever make – and a bad mistake could scar you for life – it’s highly recommended you do your homework and legwork before signing on the dotted line.
The two most common options for potential homeowners are buying or building new. For existing homeowners, renovating or extending your existing residence, or subdividing (subject to council approval) are the alternatives.
What you decide on should be based on your lifestyle, current and future requirements, budget, your borrowing capacity, stock availability, market conditions and of course the location.
Buying a home can be as simple as looking through the real estate pages of your local paper, shortlisting a few properties and finally making an offer or bid at auction. But we live in the real world where things don’t pan out as we expected. There is a lot toconsider.
“We have come a long way from 2007-08 when the market was crashing and people were afraid to get in or get out,” LJ Hooker sales manager Brett Norris says.
“The market is now moving, interest rates are likely to stay in single digits and first time buyers can still get in.”
According to Norris, the first thing buyers have to do is sit down with their broker or bank and find out how much they are able to finance.
“That will give you a realistic view of your buying power and you can then narrow down your search to neighbourhoods where your money gets mileage,” he says.
According to Fairway Bay Gulf Harbour development consultant Michael Webb-Speight, even if you have owned a house in Auckland for just five years, you should already have substantial equity.
“We are finding anyone with an average home in the inner suburbs can acquire a new house in a brand new suburb like Fairway Bay for less money than the equity in your existing home,” he says. “Moving from crowded inner suburbs to the outlying areas can translate into a better lifestyle for your family.”
Webb-Speight says in the current market, if you’re not a cash buyer, you may miss out to those who can settle immediately. Making the move to a new development can provide options for funding through the developer, which he says in many cases makes better sense.
Building your dream house offers several advantages in the long run.
When you build a home, you can have everything your way – from soft close cabinets in the kitchen to underfloor heating in the bathroom. Plus, structurally and design-wise the house will be unique.
Not only will the construction materials and building code be up to the latest safety standards, everything from wiring for highspeed internet to the latest acoustics can be added without much trouble.
There’s nothing quite like owning your brand new baby. Basically, you can create a home that reflects yourpersonality.
A house doesn’t have to be expensive to be unique. Ask around and avoid builders who are likely to give you an unrealistic estimate and then proceed to read you the fine print as construction progresses. Needless to say, such practices happen in the industry and can be traumatic for clients.
About half the cost of starting from scratch is the bare land – if you can find land in your desired area.
“Quality vacant land is hard to find,” Norris says. “Many of the available sections are already subdivided and you might find them too small to build a spacious and comfortable house.”
If you do find enough land in the sweet spot, there’s nothing like it. According to Norris, successful completion will depend on you finding a reliable and efficient project manager who can oversee everything from start to finish.
But beweare, the project manager or builder may not find your architect’s plans feasible in your budget.
While the price of land is beyond your control, you may have some leverage over building costs. According to the Department of Building and Housing’s calculator, an architecturally designed house with a floor area of 150 square metres costs on an average $298,000 to build in the Auckland area as of March 2014. At the same time, the estimated cost of a standard home is $196,650 – a tidy $100,000 difference.
Branded builders such as GJ Gardner or Jennian Homes provide a combination of architectural design and fixed price building.
Webb-Speight says GJ Gardner, who are building in Fairway Bay, have built more than 1000 homes in the Rodney District, and offerfast, efficient and cost effective solutions at a fixed price. In such cases, he says, there is often a margin for the client between their total costs and the end value of the completed home.
“A notable feature for build finance is that you can go to 90 per cent borrowing on the completed land and build package,” Senior Fellow, Financial Services Institute of Australasia Allistar Walker says.
The finance bit is usually crucial to the operation.
“A lender doesn’t want you to run out of money during the project as it jeopardises their security but at the same time they want you to keep the lid on your costs to within your debt servicing capabilities,” Walker says.
“A good broker will help you through this process, so you don’t overcook the situation, utilise the most appropriate lender, give you pointers as well as co-ordinate issues like insurance, progressive payments, stage valuations etc to make the dream a reality, rather than a nightmare.”
Another option is renovation or expansion.
Think how you feel when you rearrange the furniture in your house – does it make you feel good? If yes, then go ahead because a complete renovation will make your house look, feel and smell new – inside and out.
A major renovation can also add substantial value to your property but remember where you live makes a huge difference. Spending $100,000 on renovating in a prime coastal location makes a whole lot more sense than spending the same amount in the ‘burbs.
You also have to ask yourself if pouring cash into your current house will extend the life of the dwelling.
Before mulling this option you have to have that extra space in your section to make expansion or extension possible. Will extending that deck or adding a fourth bedroom make a mess of your courtyard or garden? Will the tradeoff of more space inside for less outside make your family happy?
It also pays to consider this – do you love your current neighbourhood – and neighbours? If the answer’s yes, then spend your money on your existing house. If the answer’s no, then think carefully.
If you tick all these boxes, then instead of making the big move, you could make the big improve.