When homebuyers come to the real estate market, many are conflicted about whether to buy an established home, or build their dream home from scratch. There are a series of pros and cons with both options, and making a decision will ultimately come down to your personal preferences, budget and needs.
An established home is one that has been lived in, and it may have had a number of owners over the years. When you purchase a brand new home, or construct your own, you will be the first people living in it.
In this article we’ll compare buying an existing home with buying a new build to help you come to a decision for your next property purchase.
Buying off the plan and buying a house and land package are similar processes. Both are used for those wanting to own a new build property. However, the key difference is in ownership.
If you opt for a house and land package, you purchase and own the land from the beginning and gradually construct a house. On the other hand, when you purchase off the plan you don’t own anything until the building process is complete and settlement happens.
We’ll explain more about each approach here:
Buying off the plan involves purchasing a property before it has even been built, based on an advertisement that includes detailed construction and design plans. There may be a display home to view, but there are also artist impressions of what the property will look like once it has been completed.
When you buy off the plan, you may need to wait several months before you can actually move in. However, in this time property values could rise and you may have saved money by purchasing the property earlier.
There are possible risks that can arise from buying off the plan:
Buying off the plan involves signing a single contract for a combined house and block of land. You pay a deposit of around 10% and settle on the total value after construction (generally with a home loan).
A house and land package combines both a home and land loan into one package, often as a way to be more affordable. So, essentially you purchase a block of land and organise the construction of a home in a single process, but there are two contracts involved. The land will be sold from one entity, and the home is purchased from a builder.
Under a house and land package, you’ll know the total price of the land and home from the beginning, reducing fears of unexpected costs down the road. The mortgage is initially just calculated based on the land, and then your second loan (the construction loan) is to be taken out. You make payments to the builder you hire in the typical six stages as the building progresses.
There are some risks you should consider before purchasing a house and land package:
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|Modern features and appliances||Newly built homes tend to be located on the outskirts of cities and towns. This can result in a lack of established community, low leaf coverage, poor public transport, long commutes and more|
|Greater opportunity for customisation, especially if you are designing the new property, rather than just buying off the plan||If you want to build in an established area, you may have to do a knock down rebuild which is more expensive than purchasing an empty block of land|
|New apartments can be found all over cities, giving you decent choice with your location||Building a new home can take a long time and be a very stressful experience|
|Newer homes tend to be more energy efficient, potentially saving you on energy bills||Like with any construction project, building a home can end up costing much more than anticipated. Delays happen if your cash flow gets interrupted|
|Various home buyer schemes such as the HomeBuilder grant and First Home Owner Grant incentivise building or purchasing a new build home||Visualising a house that hasn’t been built yet can be challenging|
|When building your own home, the cost of the land and home build may be less than if you were to buy an established property||-|
|The process is usually faster and easier and you know what you’re getting||Less opportunity for customisation, but you could renovate if you have the funds|
|If you want to live in a fairly central location, purchasing an existing home will be your main option||Potential for an outdated house|
|Established houses are usually in established areas, so you can get a greater feel for the community and are before you move in||Many established houses require updates and modernisation which can be expensive|
|Some buyers may have greater trust in the structural integrity and quality of established homes||Hidden issues can arise, particularly when it comes time to do renovations. Make sure you organise a thorough property and pest inspection before purchasing any property|
|Opportunity to purchase a heritage home with character||-|
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It’s hard to provide a definite answer, as this is ultimately dependent on the market and what buyers are looking for. However, newer houses are generally more likely to be subject to market fluctuations and building equity in these properties can be more difficult.
This is because established homes have more opportunities for improvement. For example, House A was built one year ago and House B is 60 years old. Both have the same number of bedrooms, bathrooms and are currently valued at the same price.
Other than some painting and basic cosmetic refurbishments, House B hasn’t seen any renovations in 15 years. This means that there is a lot of potential for renovations that could increase the property’s value and therefore equity. Naturally, when considering renovations, you need to ensure that the cost of renovations will be more than reimbursed through a value increase.
On the other hand, the newly built House A won’t have as many opportunities for improvement for quite some time.
Something else to keep in mind is that a newly built trendier home will look dated faster than an older home that is designed with classic taste. But, if you’re building a home that you intend to live in for years and years to come, then depreciating value isn’t something to worry too much about.
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Again, this is entirely subjective and dependent on what you are looking for in a property. If you’re looking to custom design every inch of your home, then it makes sense to build a new home. However, if you’re an investor, purchasing an established home could save you time and potentially money.
Take the time to think about what you want out of your home, and weigh up the pros and cons of each option.
This depends on a lot of factors. Most available land to build on tends to be in the outskirts of cities and towns, although it does depend on where you live. Land in these areas can be affordable and possibly cheaper than buying an existing house in other areas. But if you want to build a home in a convenient location in a capital city like Sydney, prepare to spend a lot on the land. Empty lots might not even be available in your desired location, so you may have to consider buying a home with the intention of doing a knock down rebuild.
When you build, you have to pay for every single aspect of the project, including:
However, you also have some control over how much you spend on aspects of the construction. For example, you can opt for the cheaper floors, skip the swimming pool, and go for simple landscaping.
On the other hand, most established homes are move-in ready and you more or less have to accept the cost at face value (with a little negotiation). Unless you’re planning on making improvements, you don’t have to decide between the cheaper faux-wood or the more luxurious hardwood floors. But some established homes can require serious renovations and updates, either based on need or your personal expectations. This can be costly!
It’s a good idea to get out there and see what established homes are available for your budget, and compare this with what kind of home you could afford to build.
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If you plan on doing a knock down rebuild, make sure you are aware of the following:
Get in touch with the planning and building department of your local council before you buy a home that you want to knock down. They’ll be able to help determine whether your plans are compatible with local building policies.
Consider the following questions:
Deciding what kind of property to buy or build is a big decision, so we want to help the home loan process be as easy as possible. Get in touch with a Home Loan Specialist to find out more about your home loan options today.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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