Custom Home

We want to move out of Oakland to Pleasanton, San Ramon, Orinda, or Pleasant Hill, but can’t find a home in our budget. Is it more affordable if we custom build? Should we tear down vs build on developed land? With the shortages in building materials is this even a good idea? Any ideas are appreciated!

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RE: Custom Home ()

As a general rule, custom homes are more expensive than buying existing properties. Spec homes can often be built new for less than renovating existing homes - especially if the existing home needs a lot to bring it up to code.

If you have never taken on such a project and are considering it because you can’t afford to buy, I would advise against it. Generally this kind of thing requires a lot of cash outlay before you find out if you can even do what you want to do. Then you would have to qualify for a construction loan - which is harder to get than a mortgage and has a higher interest rate.

There is a reason why real estate developers build most new things. They have the experience to know what projects will be approved, the architect and engineer relationships to do the design, the cash to fund the project until construction, the track record and assets to get a construction loan, the contractor relationships and volume to do it at a low price per square foot, and the relationships with real estate agents and brokers to sell or rent at a profit.

Profits can be high, but the risks are often very high. I’ve seen developers walk away from projects after spending $150k doing their due diligence and figuring out that the final project wasn’t going to pencil out. That’s fine for them because that loss will be offset by another project that’s profitable. But if it’s for your own house and something isn’t going to work, are you prepared to walk away from thousands of dollars already invested?

You absolutely can build new for less than buying, but only if you have the knowledge, experience, and cash to do it. Try interviewing a few developer / architects who work in the cities you’re considering and get a budget and proposal for this from them. And go in with eyes wide open if you pursue this. Remember if the developers aren’t competing for the land that you’re trying to buy, then the numbers don’t work for them — and they probably won’t be in your favor either.

RE: Custom Home ()

Like the previous poster said, it's not cheaper to build new and will take a lot longer. Your best bet is find a fixer and updated it to your taste. If the homes you are looking at are out of your budget, then the home that you want to build will probably be out of your budget too. Expect to pay $600 or more per square foot for building new not including buying the land.