To buy or to build

[hannah]

Dear All,
I have been reading this forum for quite some time. And I am now ready to buy my first property. However one of my friends just told me that it probaly is more financially rewarding to buy a section and then build on it. He was saying that to build a 4 bedroom house it would cost roughly $70-$80k. A section would cost depending on the area in Auckland say $150 - $200k. This simple calcuation seems to stack up well however I am very new in this area. So would like to know opinions from others who already had built their house. I would be very keen to get a flow chart of then events (e.g: buying the section, dealing with the builders, dealing with the bank, structuring the cash flow etc etc.)


Many thanks and kind regards

[AustinWong]

Hi Hannah,

The price you have given to build a 4 bedroom house seems quite low. If you were actually able to get a house built for that price I would guess it would be a pretty basic box at the lower end of quality ie in materials and fittings not necessary workmanship. Either that or you will have a very small 4 bedroom house.

Most houses cost between $800 to $1100 per square metre to build.

Also does this include electrical, plumbing, associated council fees, carpet and curtains, driveways, landscaping etc etc...

If you are going to build instead of buying in this market you should experience some capital gains as alot of people cannot face the effort of building. One person I met last year made about $50k just in the fact he built the house.

Now, all this of course pivots on weather you are building for yourself or to rent out or to sell.

If you are spending $200K on a section do you really want to place a cheapie house on it?

If renting out the property how do your figures stack up? Are tenants going to pay a premium for a boring old box of a house?

I reckon if building to rent out it is best if you have a bit of dirt with a house on it already , big enough to build another home on it. In some counicl districts you don't have to sub divide to build another house. This way you should experience better yields.

[tamara]

Hannah

A builder friend of our just gave us a guestimate for building in Auckland. For an additonal room or space on a house $1000/m2. If you are talking about kitchens and bathrooms $1500/m2.

I agree with Austonwong. The cost of the house you have been suggested seems very low indeed.

I would think that you would be wise to do some more definative research to find the real costs of such a project vs purchasing an existing property.

Tamara

[Marcus]

Hi Hannah,

I agree with what Lawrence says about the price quoted to build being low.
Building is not for the faint of hear either. The building process is far more complicated than buying an existing house, with many opportunities for hiccups. Not to say that it can't be done though.

Just a few points about the information from your friend.

Is your friend a successful property investor (how many IP's does he own / is he speaking from experience)?

Does this person stand to profit from your building a property rather than your buying an existing property (ie is he a builder)?

Let us know how you get on.

Regards,
Marcus.

[Glenn]

For my first IP (and I still have it) I built. It still produces a fantastic rate of return. But then it was on the back of my home section and so I got the land free.
The problem with buying land then building then finding a tenant is fairly similar to buying your first home. You have to pay out on the interest whilst you are building and this can take a long time.
During this period you can not earn any income (rent) and this is what kills all the other clever calculations.
By buying an existing property you can get rent from week number 1 (if you are clever) and onto the job from day number 1 minus a few weeks.
Building is very rewarding and satisfying but it does come with its share of problems. Why not buy something that you can build a second dwelling on. This way you get your cash flow from day 1 and get to have the fun of creating an asset.

[Josko]

Hi hannah,

I would be very keen to get a flow chart of then events (e.g: buying the section, dealing with the builders, dealing with the bank, structuring the cash flow etc etc.)

Have look at this site for some idea on the process.

http://www.tvshowhomes.co.nz/GetIntoIt/GetOrganised/default.htm

Good luck with your first IP.

[Fritz]

Re: To buy or to build

4 bedroom house it would cost roughly $70-$80k.

Hannah,

agree, that estimate seems VERY low and if he can really do it for this price 4 bedrooms 100 square I would order some.

I have done total builds and add ons, and suggest to allow at least $1000 a square meter to build basic boxes. Upwards for anything flash.

To give you an idea, Hamilton removal company sells basic boxes pre-built brand new incl the shift for 90 squares for around 81K.

Then you need to connect power, water, sewerage, costs depending where you are but allow min. $6000 incl of council fees. Add driveways, landscaping, fences, etc. and things will add up.

I have found building excellent when I bought big sections and I split them and built in the back, or move onto the front. Find somene that has actually done it and get them to walk you through it.

Get a budget and confirm your costs with someone like the Estimator off your plans, and make a decision from there.

There was an excellent article in the latest KPI mag from someone who does it for a living (and I think also does seminars)

Trust this helps. Have fun.

Fritz.

[kalovatt]

I am half way thru some extensions our PPOR, adding 2 bedrooms and 2 bathrooms, it is a fairly simple task building-wise and the all-up finished price has crept over the $100K mark.

What you got quoted for a 4 bedroom house seems to me to be a quarter of what it would actually end up costing

[Julian]

Talking to a Waiheke architect the other day and he said $2500-3000 per square metre is pretty common these days.
Julian.

[Fritz]

Team,

I have built and still budget on about $1000 a square for basic rentals. They are treated board ($59 per 12mm sheet) and batten on the outside (no paint), alu joinery (no colour), roofing au natural (no colour, cheaper) and inside is all commercial carpet ($37 meter), bath and kitchen are commercial lino (whatever colour is going), sprayed off white ceilings and walls, ready to go kitchen pushinpluginforget, and shower over bath. Layout is box style, roof is pitched, all dimensions are so they fit 2.4m x 1.2 m gib and ply sheets to save labour and material. Curtains are warehouse, landsape is weedmat warehouse and bulk bark and IHC plants. Tadaaaa.....

They are not flash, but tidy and do the job. 90 squares costs me about 90K. Just finished another one 3 months ago.

Make sure you get a set of plans that are simple and cost effective, and do them over and over.

Have fun. Fritz.

[fudosan]

Hi Fritz,

inside is all commercial carpet ($37 meter), bath and kitchen are commercial lino (whatever colour is going), sprayed off white ceilings and walls

Going a little bit off the topic...
1. Where can I find commerical grade carpet and lino?
2. In your experience, when doing the ceiling, is spraying better than using a roller or paint brush? Any trick here to get the job done quickly?

[Glenn]

I hate those sprayed walls,
One decent clean and you can see all the job stopping.
Glenn

[hannah]

Hi Guys,
So many valuable responses. Sorry guys that I could not have responded earlier. Anyway, my current situation is this. I have got $50,0000 deposit and I am trying to buy a house $320 - $330k in Auckland. However as I mentioned this friend of mine was advising me about building one. I have a full time day job hence I do not think this is an option for me build and be there on site as well when the buiders/plumbers at work. However I am keen to know how does this building process go. If my situation changes (e.g. my father in law is an ex-builder, he may move up here in Aucklad), I may be able to employ my father in law as a supervisor at the building site.

Hence this is my effort to know as much as possible in advance in regards to what is takes when one wants to build his home. Those figures I supplied were purely what my friend told me. I did not investagate at all. He does indeed build quite a few in his times. I thought this is a worthwhile discussion.


Many thanks

[Fritz]

1. Where can I find commerical grade carpet and lino?
2. In your experience, when doing the ceiling, is spraying better than using a roller or paint brush? Any trick here to get the job done quickly?

Fudosan,

1) I use an outfit in Hamilton which delivers nationwide and has real cheap commercial grade carpet, 4 colours only, dark blue is my favourite. Lino, I walk into 2 shops i use and ask for any off cuts, leftover rolls they want to get rid off. Unless it is real ghastly, that is me. PM me for the address in hamilton if you are interested.

2) I have done a few houses by now and have used rollers and backpackers as one method, and commercial painters with sprayguns as the other. I find both results very good, but the spray one is definately a lot faster and better looking. As time for me is money (and interest) I prefer the spray option on new houses, backpackers and rollers on older do ups.

For spraying mask everything, spray one gib sealer coat, wait 2 days, spray the next coat colour. Done. This method however walls end up same colour as ceilings, which is my standard off white (think it is called chaucer USA or similar).

For painting I paint right over wallpaper with 2 coats of paint, rolers and brushes.

Glenn, is your gib stopped cleaned walls 1 or 2 coats, sealed or unsealed ???

Hannah, great idea to get your father in law involved. Once you have done a few projects they get easier and easier. First one is always a bit daunting.

Have fun.

Fritz.

[fudosan]

Tips into my toolbox, done. Thanks Fritz