Should you build or buy, act now or delay?
Interest rate rises, building company collapses, inflation… It’s hard to know what to do in a situation like this.
The temptation of course is to do nothing…
To sit on your hands and ‘wait and see’...
However, that in itself is a decision, a decision to delay taking action.
A decision that may save you money if prices and values fall, but one that will cost you money if they continue to rise.
Warren Buffet, arguably one of the greatest investors of all time, doesn't believe it’s possible to time the markets.
Instead, he has always believed that time in the market will always generate exceptional returns over the long term.
And while this advice may have been directed at investors weighing up the equity markets, it still rings true for anyone investing in property as well.
Making the most of your investment
History is littered with victims of market timing in the property market.
The ‘experts' have been talking about a property crash since 2008, and yet values have continued to increase.
The fact is, interest rates are still at a historically low level, and inflation is running hot at a historically high level.
So while I’m not a financial advisor, and I’m certainly not here to advise you on what you should be doing in regard to your own finances, it seems to me that cash is in the process of being devalued, which means it's probably a good time to be borrowing some!
Sure, there is a possibility that property may go down, but one thing we do know is that over time property has always gone up.
When you consider that the average homeowner in South Australia will live in their home for 11 years, that sounds like a pretty long-term investment strategy to me.
Should you build new or buy second-hand?
There are pros and cons for both options. If you need to move quickly and are able to find an existing home that suits your needs, then buying a second-hand home may be a better option.
However, it’s important to allocate a budget to bring the home back up to a standard you would be proud of.
However, the #1 reason people build new is that designing exactly what you want, in a location you want to live in, is a lot easier than trying to find that home for sale.
How to protect yourself and your home
My third tip is to always choose value over status.
And while there are massive benefits when building your dream home, there are some land mines you need to avoid as well, namely delays, escalating costs, and building company failures.
So here are a few tips to keep you safe.
Firstly, stick to the big four banks when looking for finance.
While the smaller banks may offer slightly more attractive rates, the problem is they are simply not geared up for construction progress payments.
When a builder submits a stage claim for payment, if that payment is not made by your finance provider in a timely manner, then that could lead to your builder halting work on your project.
At Stannard Family Homes, we carry large cash reserves that enable us to overcome any short-term funding delays.
However, as you will have seen in the press over the past two years, not many building companies enjoy that level of financial strength, which means work tends to stop on their sites as soon as cash flow becomes an issue.
Therefore, it's really important to deal with a bank that has the systems in place to process payment claims from your builder within the agreed timeframe.
Another thing to be aware of is the recent rise in the number of builders using cost-plus contracts rather than fixed-price contracts.
This should be a huge red flag for any consumer choosing a builder because your liability is uncapped.
Additionally, a builder using a cost-plus contract has no incentive to negotiate the best rates for materials or even subcontractors, leading to a higher cost of construction and more profit for the builder who takes a margin on those cost increases.
Finally, always insist on seeing a job schedule before you sign a contract.
A builder presenting a contract without providing a high-level schedule documenting how they will deliver your home within the agreed timeframe has no plan, and a failure to plan is a plan to fail.
I've seen this situation play out time and time again over the years.
A potential client tells me they chose another builder because they were cheaper, but the contract was full of allowances and there was no schedule in place, which resulted in costly delays.
Nine times out of ten, they call me up and ask, "What can I do?" Unfortunately, there is little that can be done once they are locked into a building contract.
So do your research and choose wisely!
And to help you with that, I've put together a quick guide for you to download
- The 7 Things You Must Know Before Designing A New Home.
It’s completely free, and it will help you to avoid any nasty surprises that can sneak up on you when building a custom home.