How to budget for a house build?
May 8, 2023 4:05 PM Subscribe
We own an old house on a small suburban block and can see ourselves staying here for the next 15+ years.
I'm curious about knocking down and rebuilding. What do I need to know?
We bought the place in 2021 and did some work to make it liveable for us for now. It's safe and fairly comfortable, but there are plenty of things we could improve if we were in a position to do so.
We're on a fixed rate home loan until 2025 with a very good rate. Due to interest rate rises, I am counting on our rate going up when we need to refinance. If our interest rate goes up a lot, then rebuilding would probably be off the table because we'd have less ability to save and we'd want a bigger emergency fund. I would definitely not be making a decision about this project until after 2025 so we know what the situation is.
Just for emphasis: I am not committed to the idea of rebuilding in a way where I would pursue at all costs. It's just nice to dream about and do a little bit of planning to see whether it's possible.
If we were going to plan as if we were going to do this, what would we need to know?
Is this something we should only do if we can save up the money to do it rather than take out a loan?
Thanks!
We bought the place in 2021 and did some work to make it liveable for us for now. It's safe and fairly comfortable, but there are plenty of things we could improve if we were in a position to do so.
We're on a fixed rate home loan until 2025 with a very good rate. Due to interest rate rises, I am counting on our rate going up when we need to refinance. If our interest rate goes up a lot, then rebuilding would probably be off the table because we'd have less ability to save and we'd want a bigger emergency fund. I would definitely not be making a decision about this project until after 2025 so we know what the situation is.
Just for emphasis: I am not committed to the idea of rebuilding in a way where I would pursue at all costs. It's just nice to dream about and do a little bit of planning to see whether it's possible.
If we were going to plan as if we were going to do this, what would we need to know?
Is this something we should only do if we can save up the money to do it rather than take out a loan?
Thanks!
Depending on where you live, you should consider attending some local city planning meetings to get a feel for what the process is. If you live in, say, California, it's possible your neighbors will use every legal means possible to stop you because they don't like the height / shape / color of your proposed house -- or you.
posted by Mushroom12345 at 4:59 PM on May 8, 2023 [1 favorite]
posted by Mushroom12345 at 4:59 PM on May 8, 2023 [1 favorite]
[The answer to the question is quite location-specific: I'm in NSW, Australia, and work peripherally to the building industry]. You can get a rough idea for a budget for some minor work but for doing a full knockdown-rebuild, the variables are so variable, and there are so many of them—it's not really possible for a layperson to make a realistic budget, except to an order of magnitude. You can't know what the local costs are for skilled tradespeople, or their availability, or the costs of materials now and their likely price movements, or the consequences of deciding on four bedrooms over three, the need for geotechnical work, or a thousand other things; it's part of the service of a builder or building designer, or architect if you're fancy, to give you a consultation or that estimate before you start designing.
On the other hand, your lender is likely to be able to give you hard advice about how much you're going to be able to access financially, with the value of the (improved) house and land in mind. Most people start by getting that number.
posted by Fiasco da Gama at 5:13 PM on May 8, 2023 [2 favorites]
On the other hand, your lender is likely to be able to give you hard advice about how much you're going to be able to access financially, with the value of the (improved) house and land in mind. Most people start by getting that number.
posted by Fiasco da Gama at 5:13 PM on May 8, 2023 [2 favorites]
An Architect that does residential can probably give you an off the cuff square foot estimate. It has gone crazy since the start of the pandemic.
posted by rudd135 at 5:26 PM on May 8, 2023
posted by rudd135 at 5:26 PM on May 8, 2023
I would interview some architects, asking about their familiarity with local costs and how to adjust a design to fit a budget as well as their design skills. We were able to find one where he had confidence that he could guide us to make choices that fit our needs, our design preferences and our general budget. If you can find someone like that, when you think you want to go ahead, spend some time and money working with the architect to figure out what you really want. The architect can give you guidance on how your design decisions impact the budget (in a general way). Once we had the design we liked and felt we could afford to ahead our architect then did the full drawings and we used those to cost bids from the contractors. Now, even after we hired the contractors there was still lots of flex in the budget around the quality of the details so you still need to keep an eye on costs as you work through the hundreds of decisions (tile options! front door ! baseboards! so many, many decisions - all impacting the budget!)
Particularly because you don't want to start for a few years, you could start talking to architects now and maybe even start working on the design before you need to commit to doing the whole project. This would particularly well if you might decide that you can't afford it 20025 but you could still still wanting to ahead later if the money became available.
posted by metahawk at 6:17 PM on May 8, 2023 [1 favorite]
Particularly because you don't want to start for a few years, you could start talking to architects now and maybe even start working on the design before you need to commit to doing the whole project. This would particularly well if you might decide that you can't afford it 20025 but you could still still wanting to ahead later if the money became available.
posted by metahawk at 6:17 PM on May 8, 2023 [1 favorite]
Review your local laws for if there are difference between remodeling and rebuilding. Specifically here, if certain walls are retained in the rebuild, it counts as a remodel whereas taking all walls down is a rebuild -- which in some cases, very close to new construction as far as legal requirements go.
Also, consider budgeting for someplace else to live, especially if this is significantly impacting kitchen/bedroom/bathroom. Having the house vacant may allow quicker progress.
And you may be able to roll some of this over into a refi. The architect/contractor may have suggestions.
Consider doing landscaping as well if the money is there.
Don't go too big. If you really like the area, consider what you'll need after the kids leave (master down, fewer bedrooms, re-purposing of rooms, etc).
Above comments are USA-centric, btw.
posted by beaning at 6:47 PM on May 8, 2023 [1 favorite]
Also, consider budgeting for someplace else to live, especially if this is significantly impacting kitchen/bedroom/bathroom. Having the house vacant may allow quicker progress.
And you may be able to roll some of this over into a refi. The architect/contractor may have suggestions.
Consider doing landscaping as well if the money is there.
Don't go too big. If you really like the area, consider what you'll need after the kids leave (master down, fewer bedrooms, re-purposing of rooms, etc).
Above comments are USA-centric, btw.
posted by beaning at 6:47 PM on May 8, 2023 [1 favorite]
You could get a good idea of how much house your money can buy by visiting display homes (if this is a thing where you live) If you're doing a 'full' knockdown and rebuild, this will be fairly accurate excluding demolition cost, which will be more than you might think. Here in Queensland, Australia, there are a few builders that specialise in knock-down/rebuild so maybe there are some near you too? Visting building companies exposes you to a period of nagging from salespeople even if you say you're 'just looking', but it's really the best way to get a good handle on costs and what you can afford.
Where I live, there are some loopholes around new build (including knockdown/rebuild) vs renovation. The key one is that, if you leave at least 50% of structural wall framing up and the 'renovated' building is within the same footprint, it's a renovation and the building code that applies is whatever it was when the house was built, except new work must meet the current code. In my particular neighbourhood, where at least 50% of houses are currently being renovated to one extent or another, not having to meet all current requirements is important, because one of them is that the ground floor must be above 'Q100 levels' (estimated water level of a once-in-a-hundred-years flood) and most houses around here are 0.5 - 1.0 metres below that. Having to raise the ground level by up to a metre is something most people want to avoid. One of my neighbours has just added a complete second story to a house that has been demolished except for the minimum % of wall framing and doesn't have to upgrade existing components to the current code.
All that is to say - check with your local authority and find out what building codes apply, any requirements for 'character' etc that may apply and whether any upgrades may be required to infrastructure (drainage, plumbing, power etc) on your property if you build new or substantially renovate. You should do this first, because that may impact further deliberations.
It would be worth asking about demolition costs for your house, even though costs will no doubt increase before you're likely to need them. People often drastically under-estimate these costs, particularly if there is asbestos involved or restricted access for machinery.
I would not consider this something you have to save up for - if you can afford the loan payments, go for it. Some people I've spoken to who have done a knock-down/rebuild have said that moving to a nicer house elsewhere would cost them more or less as much as rebuilding in place and they get to stay in the neighbourhood they love, kids don't have to change schools and make new friends etc etc. It's definitely worth looking into seriously, in my view. Don't forget the cost of living somewhere else for longer than you expect because delays.
posted by dg at 11:08 PM on May 8, 2023 [1 favorite]
Where I live, there are some loopholes around new build (including knockdown/rebuild) vs renovation. The key one is that, if you leave at least 50% of structural wall framing up and the 'renovated' building is within the same footprint, it's a renovation and the building code that applies is whatever it was when the house was built, except new work must meet the current code. In my particular neighbourhood, where at least 50% of houses are currently being renovated to one extent or another, not having to meet all current requirements is important, because one of them is that the ground floor must be above 'Q100 levels' (estimated water level of a once-in-a-hundred-years flood) and most houses around here are 0.5 - 1.0 metres below that. Having to raise the ground level by up to a metre is something most people want to avoid. One of my neighbours has just added a complete second story to a house that has been demolished except for the minimum % of wall framing and doesn't have to upgrade existing components to the current code.
All that is to say - check with your local authority and find out what building codes apply, any requirements for 'character' etc that may apply and whether any upgrades may be required to infrastructure (drainage, plumbing, power etc) on your property if you build new or substantially renovate. You should do this first, because that may impact further deliberations.
It would be worth asking about demolition costs for your house, even though costs will no doubt increase before you're likely to need them. People often drastically under-estimate these costs, particularly if there is asbestos involved or restricted access for machinery.
I would not consider this something you have to save up for - if you can afford the loan payments, go for it. Some people I've spoken to who have done a knock-down/rebuild have said that moving to a nicer house elsewhere would cost them more or less as much as rebuilding in place and they get to stay in the neighbourhood they love, kids don't have to change schools and make new friends etc etc. It's definitely worth looking into seriously, in my view. Don't forget the cost of living somewhere else for longer than you expect because delays.
posted by dg at 11:08 PM on May 8, 2023 [1 favorite]
Adding to beaning's comments, an old house may have grandfathered features that you can keep with a remodel and not have in a new build. Wood burning fireplace, for example, in some places in California.
posted by SemiSalt at 4:34 AM on May 9, 2023
posted by SemiSalt at 4:34 AM on May 9, 2023
You should be able to get rough costs per square foot (or square meter, depending on where you live) from architects and/or builders who do remodel/reconstruction work. Here, the real estate section of the local paper will periodically have a short article about current costs per square foot; the real estate section also has an occasional puff piece about some nice couple (with increasing LGBTQ representation, which is nice to see, but it's always a couple) who do a major renovation; the pieces are basically ads for the companies involved and are always showing high-end houses, but they do frequently give rough costs.
Don't rely on any older estimates or what your friends paid four years ago, since labor and materials costs have both jumped via the pandemic.
Financing details are going to depend a lot on where you are. Here, getting a construction loan is probably the most common. Additionally, people I've known have used their own (or family) funds, or in another case got a home equity or HELOC loan against the current house, then used that for the remodeling.
You'll want to consider if the renovation will pencil out in terms of cost and value, and if that matters to you. (In other words, the house is worth $X currently; the renovation would cost $Y; and the value after it is all done would be $Z -- it's not automatically the case that Z is guaranteed to be more than X+Y, especially once typical construction cost overruns start happening.) Even if it doesn't pencil out economically, it might still be the right thing to do in terms of your happiness, and/or when compared to the other option of selling your house and buying something different.
posted by Dip Flash at 6:29 AM on May 9, 2023
Don't rely on any older estimates or what your friends paid four years ago, since labor and materials costs have both jumped via the pandemic.
Financing details are going to depend a lot on where you are. Here, getting a construction loan is probably the most common. Additionally, people I've known have used their own (or family) funds, or in another case got a home equity or HELOC loan against the current house, then used that for the remodeling.
You'll want to consider if the renovation will pencil out in terms of cost and value, and if that matters to you. (In other words, the house is worth $X currently; the renovation would cost $Y; and the value after it is all done would be $Z -- it's not automatically the case that Z is guaranteed to be more than X+Y, especially once typical construction cost overruns start happening.) Even if it doesn't pencil out economically, it might still be the right thing to do in terms of your happiness, and/or when compared to the other option of selling your house and buying something different.
posted by Dip Flash at 6:29 AM on May 9, 2023
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posted by Bottlecap at 4:49 PM on May 8, 2023