If you are aiming to save money while securing a new home for your family, you might be questioning whether it is better to construct a house or renovate an older property.
As with most major life choices, there are distinct advantages and disadvantages to both paths that require careful consideration before making a final decision.
Should I Build My Own House From Scratch?
The primary motivation to build your home from the ground up is to gain 100% creative control over the design and layout. You can customise every detail to align with your specific needs and aesthetic preferences.
Pros Of Building A House
- New Home Warranty: Construction materials and furnishings are covered under warranty, usually for six years, reducing worry about major repairs.
- Energy Efficiency: New builds utilise the latest insulation and windows, leading to lower energy bills and a smaller carbon footprint.
- Government Grants: AYou may access the FHOG (First Home Owner Grant) and other government schemes to help with the costs of building a new home.
- Instant Added Value: Finishing construction often boosts value by roughly 15% of the total cost, immediately increasing your equity.
- Less Competition: Finding vacant land is often easier and less competitive than bidding on existing homes.
Cons of Building A House
- Location: Vacant land is rarely found near city centers, often forcing a move to outskirts or rural areas.
- Long Waits: Land registration and construction can take months or over a year, with potential delays pushing back your move-in date.
- Difficulty In Cost Control: Prices for materials can rise mid-construction, potentially exceeding your original budget.
- Difficulty In Quality Control: The final product might not match your vision, or you may need to sacrifice material quality to finish on schedule.
Knockdown Rebuild Vs Building From Scratch
In a knockdown rebuild, the existing building is demolished and a new one is built in the same spot. This differs from building from scratch, where a new structure is constructed on an empty lot.
Before knocking down an existing house to build a new one, it’s essential to be aware of the pitfalls. One of the most significant risks is that your loan-to-value ratio (LVR) will increase sharply once the house is demolished.
For example, let’s say you purchase a house for $1.2 million, with the land valued at $1 million and the house worth $200,000. If you borrow 80% LVR on the purchase price, your loan size will be $960,000.
However, once the house is demolished, your loan will still be for $960,000, but it will now be against land valued at only $1 million – an LVR of 96%. And if that’s not enough, it also costs money to clear the land before you can start building.
In contrast, when lenders assess your loan for a new build, they will use the cost of construction (assuming it’s a residential property) plus the value of the land. In our example above, that would be $1 million for the land plus the construction cost, say $600,000. This gives a total value of $1.6 million. Even if your new property is ultimately worth more than this, the lender will use only the $1.6 million figure when assessing your loan. So it’s important to consider all possibilities when planning your build.
Should You Renovate Your Home?
The main reason to renovate is to add value to your property and make it more comfortable and stylish. You can make your customisations without heavily altering the existing structure.
Pros Of Renovating A House
- Less Costly: Utilising the existing structure and foundations often makes renovating cheaper than a full build.
- Bigger Land Size: Older houses are frequently situated on larger blocks of land, offering more space.
- More Character: Older homes possess unique charm and features that renovations can highlight.
- Better Location: Existing homes are often in established, desirable areas that might be too expensive to buy into otherwise.
- Time Efficient: Renovations usually allow for a faster move-in date compared to the years required for a new build.
- Flexible Labor: You may save costs by hiring specific tradespeople or doing DIY work rather than needing an official builder.
Cons Of Renovating A House
- Increased Costs: Unforeseen costs can accumulate quickly, exceeding the initial budget.
- Messy and Stressful: The process creates dust, noise, and disruption, which can be overwhelming for families with children or pets.
- Expectation vs Reality: Existing structural limits may prevent you from achieving your exact vision, unlike building from scratch.
- Decreased Home Value: Poorly planned renovations might not add value and could potentially reduce the property’s worth.
Which Option Fits Your Lifestyle and Budget?
While cost is an important factor, there are other things you should consider when deciding whether to build or renovate your home. The most important thing is to think about what would work best for your lifestyle and then decide.
Knockdown Rebuild
Best for those with a budget/net worth over $1 million who want a specific design in a prime location; not recommended for first-time buyers due to high deposit needs.
Building From Scratch
Ideal for those seeking government grants and modern efficiency in new development areas; popular among migrants prioritising a dream home over a central location.
Renovation
Suitable for traditional families wanting to live in established areas near their roots; allows for gradual improvements but excludes most new home grants.
Note: You can also read our page on building vs buying a house to make a final decision.
The Next Step
If you’ve decided to build or buy your home, our mortgage brokers can help you find the right mortgage to finance your dream. Call us on 1300 889 743 or complete our free online assessment form.