Still Better To Build Than Buy

We get asked all the time - should I build or should I buy? While we are not financial advisors, we believe that the pros of building outweigh the ones of buying. 

In this episode we sit down and discuss the pros and cons of building versus buying, and why making a decision ultimately comes down to timeline and the amount of control you want in the process. We also talk about the impact inspections have  and why some people are scared to build a new home. 

Here's a glimpse of what you'll learn: 

• Is it better to build or buy? 
• How timeline can impact your decision. 
• Stress that comes with bidding on houses. 
• Good and bad inspectors. 
• Project Highlight of the Week: Two Rivers House 

Ready to move forward with your project? Contact us here and we will put you in contact with the right member of our team.

Make sure to follow us on Instagram, Facebook, and LinkedIn to stay up to date on new project releases, trainings, and more. 

Transcript

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SPEAKER_00 0:02

Welcome to the Innovative Real Estate Podcast with your hosts Leslie Horn, Brett Crandall, and Claire Ovilla. We're here to make your life easier as a real estate developer and teach you everything we've learned about designing and building innovative homes, multifamily, and mixed use structures. On this podcast, we'll be giving you our best advice, trainings, and QA segments so you can learn from our years of experience and make your innovative vision a reality. Happy New Year, innovative real estate podcast listeners. We are thrilled to be getting going on another year of episodes here. It's been so cool to see how this podcast has grown and how many of you are really taking away really actionable advice from the guests that we've had on from the case study episodes. And if you're just joining us here on this podcast, if this is your very first episode, we're so excited you're here. And we've got a really good one to kick things off, which is a discussion between myself and Breck, our director of design here at Three Squared, Leslie, our CEO here at Three Squared, around the topic of whether it's better to build or to buy in 2024. So we want to offer the disclaimer here right from the get-go. We are not financial advisors, we are not your realtor. This is just a conversation. And we do have some insight into the industry, and we're really excited to share this today. But any decisions that you're making, please go ahead and chat with your spouse, chat with your financial advisor, and make sure that you're really coming up with a decision that's best for you in your scenario. So let's kick it off here. Breck, what's our project highlight of the week this week?

SPEAKER_02 1:44

This week we're going to be looking at the Great White North. Um heading to the Green Bay area in Wisconsin. Um, so this is actually uh lakefront property on Lake Michigan, uh just southeast of Green Bay, uh, an area called Two Rivers. So um then a very creative move. We named the house the Two Rivers House, but it's a really cool um residential design that's meant to be uh part residential and part transient lodging. Uh it's a 2300 square foot house. Uh it's a it's a hybrid construction that actually utilizes like an H shape. So there's two wings that are actually built out of containers uh in a very reasonable manner. And then there's a large double height space that actually connects the two wings. It is a five-bedroom, three-bath house, uh, very uh very efficient use of space within this design. Uh, and also features a two-car garage. So the the main double height space that houses a kitchen, dining, living space actually has views over Lake Michigan. Gorgeous house, uh, very, very farmhouse style. So if that's what you're into, we'll be putting this one up on social media for you guys shortly. So that is the Two Rivers House in Wisconsin.

SPEAKER_00 3:10

And linking it in the description. If you want to check it out, you can see all of the renderings and get some more info on that project in the description of this podcast, along with any other links, contact forms, all the things you can find right down there. Thank you, Breck. All right. Kicking it off here because Leslie and I are on phone calls all week long. You are too, Breck, but they're a little different kind of phone calls because we're often talking with people who are at that threshold of making a decision. You know, they usually have land, and so their natural inclination is to build on this land. But sometimes people are wondering is it really in my best interest to build something new or should I be uh should I be buying something that's already on the market? And again, we're not, it's not our job to make that decision for people, but we do have some insight that I think would be really helpful for people listening to this. So, where do you guys want to start today on this topic? Of is it better to build or buy?

SPEAKER_02 4:15

You know, so raise your hand if you're listening to this, and you spend any time on Zillow during the week, because I know I do, it's become like one of my favorite social media platforms of sorts, it's not really social, but it is in a way. It's like fascinating to be able to immerse yourselves in other people's lives and other people's homes and envision yourself in those spaces. I know all three of us, you know, spend some time on Zillow just to see what's out there. But if you're in the market for uh a new property, be it commercial or residential, um, you probably know the story that's happening right now. And you've been following this for years. So, Leslie, what are your thoughts on where we stand?

SPEAKER_01 4:58

Yeah, well, you know, the the answer to that question is it just all depends, right? And I raised my hand when you said how many of you check on Zillow. And I'll tell you it, I do, because there's a tool within and a filter within Zillow. And people who come to us and go, Well, how much does it cost to build in my area? Um, well, we don't know. We don't live in your area. We are not general contractors, but we are architects. We have a good idea of building, but man, the cost per square foot varies everywhere. We just um Breck and I were on a call, about fell off my chair. Um, there's a there's a house or an apartment, six unit that was being built. And the guy's like, yeah, we just priced it all out. It's gonna be built for about a hundred bucks a square foot. I'm like, I kind of looked at his things. They might be a little light on things, but still that's down in Columbus. Very simple apartments, dorm style, blah, blah, blah. But you know, so there's not that many expensive parts in that pro in that project. However, somebody asked in Texas near Dallas, and I said, Well, why don't we take a look here? I opened up Zillow, and what I did, you have a filter in there to check out homes that are new built, new construction. So then you can kind of take a look at what new construction is being sold for. That would be my, you know, my litmus test on finding out what the cost of construction is in my neighborhood. And I think it's a simple tool for us to use uh all over the United States, even international. The bottom line is it all just depends on your scenario, right? If you're just trying to grow your financial portfolio and you want to start getting real estate, man, I'd be building myself a duplex, triplex, I'd get some land and stuff that was in a decent, reasonable, rentable area. I'd live in the smallest unit, I'd rent out the other two, let them pay my mortgage, let them pay for my investments. I mean, there's so many different scenarios. If this is going to be your forever home, spend a few more dollars, right? Like, you know, it's gonna cost you whatever the cost is for general contracting and general construction. However, get those heated floors that you've always wanted, you know, those kind of things. So, you know, there's just some general pros and cons across the board. And I think that's what we should be talking about is like, can it be cheaper to build your own? Sure. You know, but again, it all depends on what the goal is of that property and what that project is all about. At the end of the day, um it's it's it's all about the numbers. Run your numbers. So I don't want to go off on big tangents right here. I want to stay pretty focused on this, but I I do think that there are pros and cons and things that you need to take into consideration um in in the process that you're you're making this huge, huge decision. Break, what do you think?

SPEAKER_02 8:04

Um I don't think it's all about the numbers. I think it's about the numbers and it's about like your your personal decision. Like it's right, you want to be happy with what you ultimately end up with. And so there is a timeline that you have to consider. I think that's actually a good place to start. I mean, you're making this decision. Is this a forever home? Is this a forever investment? Do you want to own this mixed-use building for the rest of your life? Uh, are you looking to rent units? Are you looking to sell units? Because those have different implications. You know, if if you're looking for an investment property, there is a potential that finding a structure that has good bones and updating some of the infrastructure and the energy envelope might be a better route for you. But if you're looking to have your lifestyle transfigured into an ultimate building that you want to exist in for the rest of your life, then yeah, I think that that weighs a little bit heavier than maybe a few extra dollar signs up front because you're gonna have what you wanted for for forever, ultimately, right? So I think we should start with the uh the the kind of obvious scenario at play here, which is um, regardless of which direction you go, it's 2024. The economy's in a recovery mode after the pandemic, and we're heading into an election cycle. So it doesn't matter what you do, it's all gonna be expensive. Sorry, hate to break it to you, but you know, if if you think there's one that's gonna be dramatically cheaper than the other, go go spend some time on Zillow and fight me because it's just I mean, everything's just kind of wacky right now. So, with that said, knowing that there's gonna be a cost, and this is a big decision to you, why don't we start with the pros and cons of buying? So you're out there looking at Zillow, you're spending every day. Um, I'm not even gonna touch the conversation around bidding wars. I mean, if you if you tried to buy a house or a commercial building lately, you're you're fighting with people, and those rich individuals who have stockpiles of cash are gonna win because cash is king. You've heard this, you know this. I don't think there's any secrets there. If you're going to a financial institution, there's a lot of baggage, there's a lot of strings attached into the process and the approvals. And if somebody just has cash that they can pay, they're gonna beat you out. So that might be one reason why you look to develop your own project instead of dealing with that heartache. I mean, I know plenty of young professionals, friends, you know, getting married and starting their family life together who have been looking for a home for two years and have made bids on 10, 20, 30, 30 homes. That's a good pal of mine. It was his 32nd home that he actually ended up winning the bid on, and they're moving in as we speak. So, you know, congrats to them, but I don't wish that on anybody. So obviously the bidding wars, that's that's a real, that's a real downside, but you know, it could end up benefiting you if you find a good deal and if you're happy with the results. You know, a lot of people can't lay out their lifestyle into a floor plan. That's where architects and designers can often come in and support you on that. You describe how you operate, the things you want, the want-to-haves, the need to have's, and then we kind of decipher that information and give you an output. But for a lot of people, they can just exist in a space and modify that space ever so slightly and make it something that they love. You know, so I'm not I'm not downplaying. There are good homes out there that you're just you're gonna be fighting tooth and nail for that. So let's let's talk a little bit more about go ahead, Leslie.

SPEAKER_01 12:02

Yeah, no, because I'm just and it's some of the pros of building a house is you know, the newness of the house. You know, we've had a um uh a podcast on really what's the true value of your home. It's more energy efficient right now than materials and different systems that are out there are huge on energy efficiencies, just crazy. So those are the longevity which, hey, that's a that's a big pro of of building your own house. Um, and you know, you get you can actually grow into your house. I mean, you can make a plan to add on down the road. So, you know, sometimes getting land and starting out small with your budget, and as you grow as a family, adding things on, you know, those kind of things. And, you know, just the newness, the energy cost, the low maintenance, you know, of of of building your own home. I mean, that I think these and you customize, you get to have your closet where you think your closet should be and you know, all those other fun things. So I think that's a really I mean, those are some really big highlights I think that are that people can take into consideration if they're going to build or or or buy something current.

SPEAKER_02 13:05

Well, and also looking at commercial spaces, if you you have a retail environment or if you have like a very customized business, it might be hard to find a space that's suitable for your brewery that you're trying to open up or a small restaurant. Um, and there's there's a lifespan to these things too that you want to consider. But I mean, if you look at commercial rent right now, it's just off the charts. It's it's it's absurd how how much that they're asking. And the vacancies are everywhere. Um, and that's not at fault of not having businesses, it's the cost of occupying these spaces. Um, and so it might it might behoove you if you're looking in you know at a business to actually build up that business from the ground up rather than finding an existing space and spending all of that money to renovate somebody else's property. You're actually you're actually pumping investment into someone else's equity at that point rather than building your own equity in your own business. If you know things change down the road, you can you can obviously sell that or you know adjust it for someone else, but that puts you in control of your business on a commercial standpoint as well. So let's try to bullet point like some of those, some of those offsets when you're when you when you're trying to buy something, you don't have control over the layout. The layout is what it is. Uh, you're looking for a three-bedroom, two bath, and you find a two-bedroom, one and a half bath. Like, okay, you might have to settle. There's gonna be a lot of compromises to deal with it. Um, you're also dealing with people's past issues, and you don't know what those issues were. Uh, when you when you go to buy a house, when you go to buy a property, you're gonna inspect it, you're gonna look at it, you're gonna walk through it. There might be some existing drawings. Usually there's I mean, in most instances, there's there's no existing, pre-existing documentation on the project. So you you don't really, you don't have x-ray vision, right? You can't see through the walls and know everything that's in there. There are signs, telltale signs, all over the place, but you know, when you're putting something on the market for commercial or residential real estate, you're you're trying to cover up all of those issues. You're trying to get the smoke and mirrors of the uh you know the real estate process. And so you're doctoring it up, you're editing those photos to put onto you know, loopnet or Zillow or whatever other kind of platform you're listing these things on. And then during the walkthrough, you are trying to distract people from seeing the things that might be wrong. You're trying to, you know, don't look in that corner because there's a little bit of a roof leak. Don't worry about that, you know. So you do you do have a safeguard in that process of inspectors. So you have a building inspector come to the project and they are professionally trained to identify these things. But like every other profession on earth, there are good inspectors and there are bad inspectors. So if you involve an inspector in your process, which you likely will if you're looking to buy, um, you are going to have to find someone that comes on high recommendation andor has extensive experience in these things because if they miss a major issue. So let me give you an example. Um, some of the inspectors that I have worked with in the past don't have really tall ladders or drones. And so they're not actually inspecting anything that's above head height on the exterior of a building. So they've missed, you know, bricks that are falling out of the walls, they've missed tuck pointing the mortar um on chimneys, they've missed cracks and or holes in roofs because they couldn't see it standing on the ground. And they've got to get through their, you know, three inspections today. So they're just rushing in, doing their thing and sending you a report. They didn't thoroughly actually get all around the building. And sometimes there's like a really small attic space access and your inspector can't fit. And so they're just like, well, I'll stick a camera up there and snap some photos. But they didn't actually like truly get in there. So what I'm saying is you could miss things, you could miss past problems that are now going to become become your problem that you didn't know about. You don't know what's inside the walls, you don't know what's under the ground. Now, your your building inspector will take a look at that. They'll tell you if you got you know old knob and tube wiring. It's illegal now because it produced a lot of heat. And if you insulate them, there is a small chance of it being a fire hazard. So, you know, it's it's you got to think about that. Am I am I buying a house that has a fire hazard until I replace all the wires? Um, and you got sewer inspections that look in the pipes, you know, under the ground with a camera, those are very useful, but not all purchases require you to actually inspect the sewer line. And so you you could have cracks in your pipe, you could have you could have roots growing through your pipes, and you didn't even know. Um, I I am just blown away by how many people, because of how aggressive this industry is right now, are waving inspections in order to purchase a house and win in a bidding war, which is just I just can't even fathom why anybody would do that. You're just buying problems, you don't know what they are, they're probably hidden. And the people who are waiving those inspections are probably just looking to give it the old landlord special slab white paint over everything.

SPEAKER_01 18:38

I mean, and and I'm glad you said all those specific things because that's all experience talking from just personal, in addition to you know, you see it and you hear it, you see it all the time. Um, and I think the plumbing is really huge, depending on the the age of the house. I mean, you had a you you inherited some problems with with the last house you you built. I mean, sorry, you bought.

SPEAKER_02 19:01

Um, you know, sorry if it's unpassionate. Yeah, I just exactly your old house because I was so sick of the issues renovating half of that thing from the ground up. Um I'm done. I'm not I'm not buying houses and renovating them anymore. I personally am going to choose to build from here on out.

SPEAKER_01 19:17

I got it.

SPEAKER_02 19:18

If you're sitting on this podcast, you know that I am building a house right now.

SPEAKER_01 19:22

But what are some of the positives? I mean, there's some pros in buying a house, an existing house. I mean, I think one of them is, you know, you you again, you get to choose the neighborhood just like you would if in in um if you were buying land. Sometimes there's just not land available. So you I think you have some more options when it comes to purchasing something. I think you have more options. Well, I guess that's not true because you can actually build and tear down a house if you want.

SPEAKER_02 19:46

I mean, I think the major benefits are it's there. It exists. Like, I mean, whether you have to renovate something or fix something up, like you you can move in. Yeah, that's I mean, that's the biggest thing. Like you get it, you buy it, you're in the house, then you can fix stuff, then you can make changes, but it takes out what I think is the biggest currency between the two is the amount of effort and stress that building your own project can potentially bring you, yeah, depending on your experience level and the team that you have at your back in order to do this. That's and that's really the major offset.

SPEAKER_01 20:21

So, one of the so the biggest pro, I think, in in building I'm sorry, in buying a house is that you can actually be in that house in 30 days plus or minus. I mean, I think that's really good. Now, let's talk about some of the cons of building the house because that's one of the cons. You don't get into that house if you're building it in 30 days.

SPEAKER_02 20:43

Yeah, I mean, building building is a lot of work. It's not for the Mika heart. Uh, you you have to be committed to this. This is your baby, effectively. And so you need to nourish it and grow it until it's you know ready for you to move in. There, there is a level of patience involved with this and the unknowns. And finding that team is a huge, huge hurdle. I'm not saying it's necessarily a downside, but it can be. And I think everybody on this team has had some experience in dealing with maybe a bad contractor or you know, a municipality that's really fighting you on the design that you're trying to push through.

SPEAKER_00 21:23

It's so funny that you refer to it as your baby because of how many clients of ours have actually like gotten pregnant and had a baby in the process.

SPEAKER_02 21:33

Yeah, I don't know what it is. It's like we're gonna build a house, but while we're building a house, we're also gonna build a baby. It's it's seriously, it's like five of our clients right now are like building a house and have newborns. It's it's hysterical.

SPEAKER_01 21:50

Oh, this is so funny. But you know, there it building a house is is probably one of the most stressful things you can go through. Um, if you've never done it before, if it's your first time. Even if it's not your first time, I think there's stressful moments throughout the whole process. You know, you're waiting for design work, you're waiting for approvals, you're waiting for then, you know, going through general contractor uh interviews and things of that sort. But then once you get started and the permit is pulled, then you've got uh it's not just downhill from there. Shall we talk just a little moment about that? Not a whole lot, but I mean, Brick, uh how long did it take for you to get your foundation? This is after your permit was approved for your house.

SPEAKER_02 22:38

Well, I mean, if you consider like the breaking ground date, it was it was a couple of months. Um, I mean, our scenario is a little bit different from the permitting stage, but um no, I mean it's a it's a couple months, you get it in the ground. I mean, you're probably looking at about a year, give or take, before that home is ready for you to, you know, actually start finishing it out and moving it in. Um, I'll just I mean, all the pros are the offset of the cons of buying a house. So it's really just looking at the inverse. So you have control over the outcome, you have control over the process. Even if some of those things are contingent on other people's schedule, like you're still involved in every step of the way, which means that you're involved in seeing those systems go in. Like you can actually document the process from start to finish. You will have existing drawings of the project in its entirety that describe the systems that are in the house, the construction of the house, and you can have photos of the wires in the wall. So when you're, you know, going to mount a brand new TV on your giant wall there, you know where to avoid because you have photos of where those cords are in the wall. You don't have to worry about like hitting something, hitting a pipe or something like that. It gives you that x-ray vision that you miss when you buy something because they don't have that documentation. It also allows you to select all of your finishes and materials. Who's bought a house and said, I'm gonna renovate this bathroom? And then 20 years later, they're like, still thinking about renovating this horrible pink bathroom that I've lived in for 20 years. Um, they don't always happen that fast. So you can select the things that you want from the get-go. It also provides you more control over your location because you're not buying a house or a commercial building that's set in its area. You're looking at potentially land, open land, vacant properties that you can fill in. Um, or you're or you're looking at you know a neighborhood where it might be kind of a rundown building or a building that doesn't appraise for nearly as much as the value of its adjacent homes or buildings in the area, and you could actually demolish that structure and put a new building on top of it instead. Uh, and so it gives you a lot more control over like every aspect of the project from the outcome, the process, the actual property itself. And then the last moment that I'll touch on is just like as an industry whole, we know that prices of homes are up.

SPEAKER_01 25:09

Wow.

SPEAKER_02 25:10

Pretty much an all-time high, right about now, which also means that appraisal values are up because appraisals have to keep in stride with what the average value of homes are for an area or the average value of commercial spaces are for a given area. And so if you're looking to build and you provide the specifications of what you're planning to build, you could see an appraisal value that's significantly more than either your pre-approval or basically what you plan to spend. And that's your litmus test. Honestly, if there's any advice that I could give you, it's go find out what you're worth or have an idea of like what kind of a payment you could support over a period of time. And generally, we're looking at somewhere between 20 and 30 years on mortgages for construction loans. Um, what's the value that you can pay? And then balance that with what's the appraised value of this? And if you're well under that appraised value with what you have to pay, you're in great shape. And honestly, at that point, I would ask you the question why wouldn't you build over trying to buy something?

SPEAKER_01 26:15

Yeah, well said, Breck. You know, oftentimes people come in to the decision and um they're afraid to build a new house, they're afraid to change the neighborhood, and they're afraid to push the envelope with new design ideas and bringing something in. And you know, you're bringing something a little new into the community, but I like to think of it as you're bringing in some new history into the community with new and really incredible energy efficiencies. You're being smart about your home that you're that's being built, and it's still coming in under, you know, traditional stick built cost, which is truly amazing. So I'm, you know, I I look at this um and it's it's a big decision. It's a huge decision. And so I I'm hoping that we as a company, as an architectural firm, are able to really share like the proper steps, right? And to be good stewards for people who are in this process of making decisions. We've talked to a lot of people, and actually, we just got a phone call um last week saying, Hey, we um we we talked to you last year, however, um we decided just to go buy a house. It was just so much simpler. We weren't up for the challenge of building a house, but we have some land for sale now. Do you know anybody who wants to buy this land? Um, and then on the other side of the coin, we have people who are like, okay, um, we listened to the podcast. I actually went to the banker um and we have great news now we know how much we qualify for, we know how much money is in our savings so that we can actually go buy the land. We now know how much we have to have in that little special soft um bucket, soft money bucket. You know, you get your hard construction costs and your soft costs. So now we kind of know and we're formulating our budget. And man, it took us a year to plan this out, but boy, are we excited to build. I mean, I and and those are, I mean, I either way, it's whatever decisions, great for you and your family. But Breck, I I'm on your side. I I wouldn't want to inherit anybody's, you know, crap, things that they hid, things of that sort.

SPEAKER_02 28:37

On the design side, I mean, how many of our current clients right now, both commercial clients and some residential, have said to us, we're setting the new standard for this area.

SPEAKER_00 28:47

Yeah.

SPEAKER_02 28:48

Like for this street frontage, for this neighborhood. It gives you an opportunity to actually put your flag in the ground, not an alien spaceship. That's not what we're going for, but to set a new design standard of excellence, I might add. You know, we're not we're not just trying to do stuff to do stuff, we're trying to make the best buildings we can because these are good people and they're investing their time and energy into it. So, two comments I'd like to kind of wrap up with, just to give you some food for thought, is um, you know, one is one is if you're considering buying a property as passive income, as like an investment for you, um, what are the opportunities that that provides for you that you wouldn't be able to have on your current property if you were to add to your current property? Um, say you own a decently sized house, but you got a lot of lot and you got room for parking. Well, consider maybe building an accessory dwelling unit on your land that then increases your equity, increases the value of your home, but allows you to let your accessory unit pay your mortgage for you rather than moving out buying a totally new property that might have two or more units. So that's just something I want you to consider. And then the last note is something that Leslie has taught me year after year after year is if you are a commercial developer and you're looking to develop, Leslie, what's the plan here?

SPEAKER_01 30:16

Well, you've got to maximize um your space. Number one, increase your density. But hey, why not add a little bit of residential on it? Is that what you're referring to?

SPEAKER_02 30:26

Max it out every time. Max out if you have a buildable area, max it out. If you have a number of units that you can max out, do it because it's all going to pay dividends at the end of the day. It's like it's like the anecdote of buying a small pizza versus a large pizza. A larger pizza is always a better deal. Always do the math, always better. So develop like pizza.

SPEAKER_01 30:55

I think we got the tagline for this, but you're absolutely correct, man. Just absolutely correct.

SPEAKER_00 31:01

Develop like pizza. There we go. And on that note, if you want to give us a call, um, 1-800 pizza squared. All right, 47 digits, but all right, we've got some more solid episodes coming your way over the next couple of weeks. We've got some new case study episodes with some developers we're working with currently. So stay tuned for those. If you want to chat with our team, the link's down below. Everything's down below in the description. So thanks for tuning in, and we'll catch you next time. Cheers. We hope you enjoyed this episode. And if you found it so valuable, you want to connect with us one-on-one, click the link in the description to tell us all about your project so we can help you get started. And to get notified on the next episode here on Innovative Real Estate. Go ahead and subscribe to the podcast on iTunes so you never miss a beat. Get out there, put today's advice into action, and we will see you in the next episode.