Should I Build or Buy a House?

build or buy a house

A lot of this blog follows along with our building process. But here and there, we’ll give some advice on things we’ve learned along the way. This is one of those times, where we want to try and answer the question “Should I build or buy a house?”

If you’re considering building a house but haven’t purchased any property yet, now’s the time to think long and hard about whether you should build or buy a house. Since we’ve been down this road a time or two, here’s where we land on the matter.

First, figure out your budget

This entire exercise is just pie-in-the-sky thinking if you haven’t yet figured out what you can spend on a house. There are lots of “how much house can you afford” calculators out there, like this one. Be wary of any operated by banks – they have an incentive to get you to take out as big of a mortgage as possible. Don’t forget to run the numbers on whether it’s better to rent or buy in the first place. This New York Times calculator is outstanding. And there are plenty of times where it doesn’t make sense to buy in the first place.

Be mindful about becoming “house poor” by stretching your budget to the max. Leave some wiggle room so that you can have some extra cash on hand to invest, or take vacations, or whether the loss of a job.

Put all that together and figure out how much you can put toward a home.

Figure out your priorities.

What do you want in a home? Consider the basics, how many bedrooms, how many bathrooms, how big or small compared to your current place. Consider other things like location, school district, yards, etc. Do you have any wants or needs for unusual features like single-floor living for accessability purposes, or a rental unit, or a big workshop for a home business. Keep in mind the difference between things you need and things you want. What may be a “need” for one person may only be a “want” for someone else.

How do your budget and priorities match the market?

Look around at the houses for sale that, broadly speaking, satisfy your “needs.” Broadly, that means a match on square footage, general location, condition, and bedrooms/bathrooms.

If anything on the market satisfies your “wants,” your “needs,” and your budget, stop now. Buy the house. There’s no reason to go any further. Even if you want to swing the hammer yourself, or you think you’d enjoy the process, you’re in such a rare position that you should quit while you’re ahead and buy the house.

If you can’t afford the houses (based on the budget you’ve set above) that broadly fit your criteria, this is a pretty good place to stop. Because though the cost of a specific build is very market and location specific, very broadly speaking, housing markets are rational. If it were much cheaper to buy than to build, nobody would be building houses. If it were much cheaper to build than to buy, everybody would be building houses. So unless you’re in a very unusual market, if you can’t afford to buy a house in the ballpark of what you want, it’s unlikely you’ll be able to build it.

However, if you can buy bigger houses than the one you want but can’t find anything on the market to fit your needs, you may be a good candidate to build. That is, so long as you’re allowed to build the size you want (many zoning regulations require a minimum square footage, for example).

Likewise, if you can afford houses in the ballpark of what you want when it comes to size, condition, and location, but you don’t like anything on the market, then you might be a good candidate to build a house. 

That’s generally where we found ourselves in Summit County. There were houses on the market we could afford that fit our general size and location requirements. But each one had pretty major flaws, at least to us. For a lot of them, it came to views. We didn’t want to move to the mountains and not be able to see them. For others, layouts were strange, or didn’t use space at all the way our family uses space.

What’s it Worth?

Now the rubber meets the road. Look at the difference between the dream house you assembled in your mind and the somewhat similar homes on the market that you can afford. Are relatively minor differences in layout, finish, location, and/or orientation worth a year of your life and a 10-20% premium on price? If so, and if you can absorb the extra costs that crop up without sweating about them too much, then great! Homebuilding is probably for you! Time to start looking for land.