Category: Budget

Design – Controlling Costs

When you are planning a custom home costs can quickly run away with the initial budget!

Just watch a few episodes of ‘Grand Designs’ and you will see people with costs out of control!

If you are planning a custom home here are a few thoughts.

Expensive Main Features

  • Overall Size If you buy Bigger Than You Need its not just the house cost, but the extra rooms you need to furnish
  • Lots of Different Shapes – Irregular Floor Plans, Unusual Shaped Rooms , Other Than 90 Degree Corners, Complex Roof Shapes (see Photo), all mean that prefabricated components can’t be used and increase both labour costs and risk of mistakes.
  • Site Slopes – Even with split level houses there will be additional foundation costs and extra area for stairs.
  • Underground Garages – Structures below Ground Level have to be much stronger and consequently are more expensive.
  • Large Open Spans – Extra Engineering Design Costs and more complex structures.
  • Masonry Internal Walls – More expensive than timber frame walled and add to the cost of installing services.
  • Bushfire Protection – The lowest level of Bushfire Risk can add $10,000, build in the Flame Zone and  $100,000 may not be enough.

Expensive Details

  • Ceiling Corners – Square set or shadow line corners look good but are more expensive than traditional cornices.
  • Lighting – Downlights everywhere, especially in lighting bulkheads can add thousands.
  • Expensive Appliances – Some of the kitchens I see have more appliances than a commercial kitchen but are only used for warming up take away food.

What do you think adds to the cost?

 

All this and much more in the Guide to Choosing a New House

 

Understanding Display Homes

I have compared the Cost of a Display Home with the price for the advertised price of the standard house, so here are what the differences are:

What you won’t get in the Basic House (unless there is a ‘Special Offer‘)

  • Premium Kitchen Cabinets
  • Premium Kitchen Fittings and Appliances
  • Stone Benchtops
  • Glass or Premium Tile splashback.
  • Large Stacker Doors in Family Room
  • Downlights and other lighting upgrades
  • Premium ‘Walk In Robe’ fit out
  • Premium Bathroom Fittings
  • Premium Bathroom Tiles
  • Premium Flooring Options
  • Premium Internal and External Doors and Door Fittings.
  • Air Conditioning
  • Premium Facade Option
  • Premium Bricks
  • Premium Roof Tiles
  • Premium Driveway front path
  • Decking / Barbecue area
  • Landscaping (Including Paths)
  • Pool

Here are some things you probably won’t see but I recommend you think about budgeting for.

  • Extra Power Outlets
  • TV / Satellite Antenna
  • Extra TV/Data Points
  • Extra External Taps
  • Better locks
  • Washing Line
  • Automatic Garage Door Opener

 

For more advice see the   ‘Guide to Choosing a House‘

 

Specification

Control of costs is really important if you don’t want to run over budget on your new home.

One of the key areas in controlling costs is understanding the specification of the house.

One of the traps that many people fall into is paying a deposit based  on an initial specification, They are then hit with major costs down the track to upgrade to the standard they want.

There are really 3 stages to the Specification of a New House.

Basic Stage

This covers the building of the main structure of the house and includes:

  • Floor Plans
  • External Elevations (what the house will look like)
  • Foundations
  • Construction (eg Brick Veneer , Double Brick. timber clad, etc)
  • Windows
  • Basic Insulation

 

Detailed Design Stage

This is when the things like fittings are detailed such as:

  • Kitchen cupboards and counters
  • Cooktops and Ovens
  • Bathroom Fittings
  • Tiles
  • Electrical Fit out

Watch out for the builder including Prime Cost Allowances

There are extensive checklists in the Guide to Selection that will help you through this stage.

Finishing

These are the finihing touches which may be included by the builder, but are usually done by the homeowner after the move. These typically include:

  • Driveways
  • Paths
  • Gardens
  • Pergolas
  • Pools
  • Outdoor Kitchens

If these are the things that you want included in your new house you need to be aware of the likely cost and make sure that you have enough left in your budget.

 

See Budget for similar posts

 

Ghost House 2

Here is another Ghost House where nothing seems to have moved for a long time.

As you can see it was going to be a big house.

After being exposed to the elements for years it’s probably only fit for demolition.

I have heard people say you should aim for the biggest you can afford . . . . That’s fine as long as things go well . . . . . . . . Hit a problem and this can be the result.

‘Choosing a New House‘ explains building costs to help you avoid finishing up with a ‘Ghost House’  like this.

Bridging Finance Basics

Guest post by Callum Scott of Scott Finance

Buying Your Next Home

. . . .  but haven’t sold your current house?

You can put your home on the market, sell it, settle and then rent while waiting for your new home to be built. For some people this can be a real hassle!

The Alternative

You can obtain bridging finance.

In simple terms, it means that your lender can increase the amount of your loan to cover the purchase of your next one before the sale, or settlement, on your current one. On settlement of your original, funds are then applied to reduce the total loan outstanding.

Of course, over this period you will be paying out a lot more in interest payments, but it is usually for a short period such as six months for an existing property, or one year where a new property is being built.

One possible disadvantage with this facility is that if your home takes longer than expected to sell, interest repayments will be larger than expected. Therefore it makes sense to build this possibility into your planning. You will also need sufficient equity in your existing home to qualify for this type of loan.

Some lenders will charge a higher rate for this facility whereas others will simply apply their standard variable rate.

 

Saving Costs During Bridging Period

Most lenders will offer an interest-only option with the loan reverting to principal and interest once the funds of the sale have been applied to the total loan amount.

Some lenders will capitalise interest payments during this period. This means you make no interest payments, with the interest amounts being added to the amount that you owe.

At completion you then recommence repayments which would be typically higher as the principal you now owe is larger.

 

For no cost advice about new house finance contact: Scott Finance

 

 

Love the Display Home

BUT CAN YOU AFFORD IT?

When you visit a Builders Display home you will probably be given a price list which quotes the Basic Price for the house you are looking at.

Don’t be fooled!……… The feature you see in the Display Home will add much more to the cost.

The following table provides examples of the value of upgrades added to Display Homes around Melbourne.

Builder

House

Base Price

As Displayed

Percentage Increase

Burbank

Prescott 1900

$152,200

$205,489

35%

Carlisle Homes

Illuka 25

$179,900

$248,895

38%

Dennis Family Homes

Hastings 241

$177,900

$251,400

41%

Hallbury Homes

Vogue 39

$314,900

$484,900

54%

Metricon

Delta 22

$169,200

$253,262

50%

Porter Davies Homes

Montague 21

$161,900

$255,563

58%

Simmons

Villa Vitoria

$294,600

$479,038

63%

All figures as published in the Melbourne Herald Sun 17 August 2013

You can see figures for 2017/18 prices here: Display Home Upgrades

Additional Costs

In addition to the displayed costs you might have to pay extra for:

To get some idea about how the costs can add up follow this link: What Will It Cost.

Also see

 

Negative Investment

Negative Investment can be quite a problem…..but what is it.

Well it’s when the house is worth less than you paid for it. This can be a real issue if you need to sell the house.

There are three ways you can find yourself in a Negative Investment Situation:

Falling House Prices

For a long time a lot of people though that house prices always go up.

Over the past five years prices have been more up and down. Now they seem to be on the way up at the moment but there is no guarantee that will continue.

Unfortunately there is nothing any of us can really do about this problem in the short term. If you can wait long enough you should get your money back. In 1991 we built a house in Country Victoria for $130,000.  Ten years later we couldn’t sell it for the original cost.  After renting it out for another 5 years we were able to sell it for $200,000. 

At least with this type of negative investment it will also typically affect the price of any house you buy when you sell your existing house. That’s  good if you do keep in the housing market……….but not good if you have to sell and enter the rental market.

Extensive Upgrades

I have already mentioned that the builder provides the Typical Display Home with upgrades that increase the cost of the base house by 50%.

If you go for a similar level of upgrades you may not get your money back. This is because:

    • When you put the house on the market you will be competing with houses in the same suburb that didn’t cost as much. Those owners are happy to sell for less than you. This means you may only get minimal interest from buyers.
    • Taste is very individual. For instance prospective buyers may not be too keen on the ‘Special’ tiles you paid  thousands extra for.

If you keep the house for a long time,say 20 years, this effect of the upgrades diminishes as your original costs wil be long forgotten and buyers will be expecting to remodel.

Over Development

Over Development is the extreme version of upgrades. Its when you put the biggest possible house on your block….. Often loaded with upgrades.

With this you may now have a house that costs two or more times that of the average house in the suburb.

When you come to sell the problems are:

  • For the price you want most people will prefer a smaller house in a more expensive suburb.
  • Generally people want outdoor space in proportion to the size of the house. A narrow gloomy strip at the sides and back won’t cut it.

The trouble with Over Development is it can have a permanent effect on the value of the property.

Restricted Site, Costs

People are astonished at how the builders costs soar when building on a restricted site!

A restricted site is generally when a the building takes up most of the block. Generally this means that there is little room to store materials and special techniques may be needed to construct the house.

Generally if you are on a new subdivision you should be able to avoid  restricted site costs but if you are looking to build in an existing suburb, particularly something like a Battle Axe block, then there is a good chance that you will be hit with the extra charge.

Here are some of the reasons why it can costs extra:

Double Handling, If all there is limited space for storage on site the builder may have to store some of the materials at his own yard. He then has the additional cost of reloading the material onto his truck and delivering to site.

Smaller Deliveries. When you buy building materials the charge is normally based on the cost of the materials and the cost of delivery. If you need 2 or more smaller deliveries rather than 1 the cost is going to go up.

Different Construction Machinery. In some cases the contractor may have to use smaller, less efficient, excavators. For really restricted sites it may need a much larger crane, parked in the road (which can mean traffic management costs) to position heavy items, like roof trusses.

Difficult Construction This can mean more hand work or dealing with building a wall on a boundary with limited access, and having to support foundations of neighbouring buildings.

Parking Fees Sound insignificant,  but if its going to cost the tradies $5/day each when they normally park for free so they are going to want be charging that to your job.

 

See Blocks for more information on buying land

 

Final Cost – When Do You Find Out?

Some people think that when they pay an initial deposit, and leave the Builders Sales Office they know how much their house will cost…………..If you are unlucky, and/or don’t know how the system works you could be hit for unexpected costs in the order of tens of thousands of dollars.

These are the times when you find out about costs:

Initial Deposit

Unless you ask at this stage all you will know is the basic house price.

It will pay to spend sometime asking about what any alterations to the plan, brick and roof choices, and upgrades will cost.

Although you will get some information it is unlikely to be complete.

Pre-Contract

When you find out about site costs including:

  • Any Excavation /Fill
  • Additional Foundation Costs.
  • Restricted Site Costs – Generally for Demolish and Rebuild, and Battle Axe projects.
  • Potential Rock Cost.

You should also get the costs of any structural changes.

If you have got a flat site with good soil the extra costs can be minimal, an additional $5,000 wouldn’t be unusul for a typical site. If you have a difficult site it might be an extra $30,000 or more.

Selection*

The stage when you make all the “little” alterations such as:

  • Electrical fit out
  • Heating
  • Bathroom Fittings
  • Kitchen Fitings
  • Etc, Etc.

Be very careful at this stage, if you go for minor upgrades to the standard fit-out it could increase the costs by $1-2,000. Try to duplicate the Display Home and you can increase the base costs by 50%.

For more details why not get the Selection/Pre-Start Guide for only $4.

*Some Builders don’t do the selection of final fittings until the Pre-Start Meeting (after you have signed the Contract)

Contract

You will get an ‘Overall Build Cost” of the build with the site costs, together with all your amendments and upgrades.

A few things to check that might change the cost are:

  • Provisional Sums-Typically rock or Concrete piers
  • Prime Cost Items – Unusual items the contractor hasn’t been able to price.
  • Cost of Service Connections – Normally the contractors price will cover a distance of 5-6m. If you have a larger setback you may be charged separately.

Completion

This is the time when you find out what the total payments to the builder will be.

Unless you have made a number of Post Contact Variations, or the Provisional Sums haven’t been enough for the conditions encountered, it should be very close to the Contract Sum.

6 Months Later

I don’t know about you but I find there are lots of costs when I move into a new house.

For the first couple of weeks I seem to visit Bunnings at least every day for picture hooks, toilet roll holders, door hooks etc. etc.

Some of the bigger costs are:

  • Additional paths
  • Clothes hoist
  • Plants, and turf if you want an instant lawn
  • Curtains

 

For more information see What Will it Cost?

For help with Pre-Start/Selection see the anewhouse Guide

 

Living While you Build – Cost

Living costs during the time your new house build can be much more expensive than after you have moved in. Its well worth planning for the additional expense.

Why is it expensive?

Well you will have either a mortgage or rent on where you live now, You will also be paying the mortgage on your new block, plus the mortgage on the stage payments on the house construction.

In the last couple of months of build you could be paying close to twice the monthly cost of the final mortgage. If the build is delayed things can really go pear shaped with regard to debt.

There is the opportunity in a standard building contract to have a liquidated damages amount which can help control the risk. In our last building contract this was set at $250/week (which would pay the rent on the place we were living in) if the build took over a year.

If you are unmarried and still living at home, or can move back with family for the time of the build, that can really help. For the rest of us its a case of making sure that we budget for the additional costs and putting some cash aside.

It’s worth remembering that if you have selected the right size of house you should be able to afford more than the basic mortgage on your new house so that you can stand possible future interest rate rises.

Just make sure that when you move the credit card isn’t maxed out. There are usually lots of costs up after the move such as blinds, curtains, additional furniture and gardens. All things needed, to finish off your house.

If you think all this as a major obstacle, then perhaps building isn’t the way to go. Buying an established house or finding a house/land deal with a standard real estate contract deal of 10% deposit and the balance at settlement may be better options.
 

For more posts about decisions like this see Starting Off