build or buy a home

How to decide whether to build or buy a home

With record low interest rates and financial incentives encouraging people to purchase property, you might be pondering whether to build a new home or buy an established property and renovate.

There are many benefits and challenges for both options, which KnowHow’s Bushy Martin discussed with Kevin Turner on 4BC radio (listen at the bottom of the article or here).

Bushy explains in more detail below:

What are the financial incentives?

The key financial incentives being offered by the Australian Government help buyers overcome the obstacle of paying the deposit, stamp duty and establishment costs, which can amount to between 10% to 25% of the property purchase.

So, there’s now the perfect opportunity to buy a home, especially for those looking to renovate or build, or if you’re a first home buyer.

For those looking to undertake serious renovations or build a home, you can still access the Federal Government’s HomeBuilder program, which can give individuals an extra $25,000.

And for first home buyers looking to either build their first home or buy a just-built property that’s never been lived in, they can access a mix of:

  • First Home Buyer building grants of between $10,000 to $20,000 (depending on the state)
  • Stamp Duty waivers and concessions which can wipe $10,000 – $20,000 off the cost
  • First home loan deposit scheme, where the deposit is only approximately 10%
  • Super Saver Scheme, which provides up to $30,000 of tax effective savings

Lenders are also more generous towards first home buyers and there are still a number of banks that will allow people to borrow up to 98% of the value of a home including mortgage insurance.

Through these schemes, first home buyers have been able to secure a $400,000 new property with a savings deposit as low as $4,500.

What are the Pros and Cons?

Buy

Buying an existing property allows for a quicker, less stressful purchase and provides opportunities to purchase in more established areas closer to the city.

However, it comes at a price. Established homes are generally less affordable, with a higher deposit and stamp duty required, along with hidden defects and renovation costs, and more maintenance needed. These homes may also have older finishes and be in a run-down condition.

To overcome these issues, it’s recommended that buyers have enough savings to cover all fees, and to secure a good building inspection report from a licensed builder to avoid the hidden renovation costs. Buyers should also ensure the property and any renovations have been approved and certified.

Build

Building a home not only has the physical and modern appeal, but it is significant cheaper. Building incurs lower establishment costs, deposit, stamp duty and maintenance requirements.

Although, people may be waiting 9 – 12 months for their home to be complete, and the process can be complex and stressful. There can be many cost variations, and interest costs will apply during the building phase. These homes are also generally in less established areas further away from the city.

So, it’s recommended that buyers allow an extra $10,000 – $15,000 for the extra loan interest, and make sure the true fixed price is in the contract. You should also get a soil report done to lock in the footings and soil treatment costs upfront.

Are there any other considerations?

Some additional points for home buyers to be aware of.

  • Consider ‘rentvesting’, where you buy the right investment property while living and renting in your ideal, liveable home
  • Don’t forget to get a home loan pre-approved, to ensure you know your budget, speed up the process and avoid unnecessary headaches
  • Make sure you know what the ongoing costs are from the start
  • Remember that your first home is not your forever home, so buy smart and set yourself up for success later in life
  • Don’t base your financial decisions on online borrowing calculators, and don’t just rely on your existing bank for a loan – make sure you go to the market with a broker to find the best possible deal
  • Buyers should gain a sense of the area by driving around the neighbourhood, while those building should avoid odd shaped or sloping blocks.

Listen to the full interview between Bushy and Kevin Turner on 4BC Radio below.

Bushy Martin joins Kevin Turner on 4BC Radio (Part 1)
Bushy Martin joins Kevin Turner on 4BC Radio (Part 1)

KnowHow Property Finance helps hardworking time-poor professionals build wealth safely and affordably to improve their lifestyle through a unique integration of strategy, finance and national property facilitation solutions.

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