Is It Better to Build or Buy?
Real estate expert Carol S. Billups
helps tackle this burning question
In our case it was a matter of necessity: After our second house-hunting trip, we simply couldn’t find anything in our price range that we liked. We were shocked when a realtor asked whether we’d considered buying a lot. Building simply hadn’t occurred to us. Yet, that is exactly what we ended up doing—and happily. Still, it’s not a recommendation I make to 100 percent of my clients. Having experienced several market cycles, the question of whether it’s better to build your own or buy a turnkey house is tied to more factors than you might imagine. And everything changes with market dynamics. Here are some questions to ask yourself when deciding whether to build or buy.
Where is the market trending?
Custom-built homes are the surefire way to get the home of your dreams. Whether it makes financial sense is another issue. When the real estate market is robust, building may cost less than buying existing inventory. For the past few years, the market has been slow: Many sellers have dropped their asking prices to below the cost of construction. As a result, some real estate agents have been suggesting their clients buy existing inventory, and, in many cases, those clients have snatched up homes at a fraction of what it would cost them to recreate. While there are still a number of these “opportunity” houses, in some areas and price points, they are becoming rarer. In those instances, it may once again be cost effective to build your own.
The value of building lots also suffered from the economic downturn, and even view lots in gated communities are being offered at value prices. For example, at press time, a lot in Pedregal with expansive views of the bay and mountains was being offered for only $127,000 U.S., and a lot in the exclusive Querencia community with views of the ocean and golf course was listed at $290,000 U.S. Not only luxury property has been affected; in fact, when this article was being prepared, there were more than 1,000 building lots being offered for sale in the statewide multiple-listing service with prices starting at under $10,000 U.S. for rural lots without services on the East Cape. If you are considering retiring to Los Cabos but are still a few years away from being able to quit working, buying a building lot now and keeping it in your portfolio may make perfect sense.
Can I pay cash or do I need a payment plan?
If you cannot manage an all-cash offer for an existing home or if the seller is not offering to carry paper, building your own or buying presale from the developer may be worth considering. Either option allows you to spread out payments over time, and some developer financing converts to a conventional mortgage upon completion of your house or condo. Some of the newer developer financing options even offer you the choice of peso, U.S. dollar, or Canadian dollar financing.
Opting for a custom home will allow you to create your own payment schedule; holding the lot until your finances allow (or until construction loans are once again available). Again, this strategy is particularly useful for those who anticipate having more than two years before they will be able to use the home as a full- or part-time residence.
Am I patient enough?
Buying pre-construction from a developer or building your own home may require patience on your part. Just as in the United States and Canada, construction schedules are at best optimistic estimates. Construction delays are common and can be very lengthy. Construction overruns can last a few months to more than a year. If you are dead set on holding your daughter’s wedding on the deck of your Los Cabos retreat or have a firm retirement or moving date, you would probably be better served buying a turnkey property.
Before you buy a lot, you may want to consider a consultation with one of the local architects; most will meet with you at the lot at no charge to discuss costs and give you an idea of what can be done with the terrain and view. Be frank about costs and budgets. Keep in mind that for most architects, the budget is another optimistic estimate. Building costs in Los Cabos vary greatly: You can bring a home in on a reasonable budget or spend a fortune. I’ve heard estimates of $120 U.S. per square foot to well over $700 U.S. per squre foot, depending on the terrain, the architect’s fancy, and, most importantly, the finishes. In Los Cabos, the materials are the significant cost in building a home. Labor—even skilled labor—is quite affordable. But most of the materials used to build are shipped in from mainland México, and a large portion are imported from the United States or Canada. The recent devaluation of the peso has caused the cost of imported materials, such as wood, to almost double. To bring your project in within your budget, choose domestic products whenever possible.
An often overlooked choice is buying a home in need of updating. Today’s buyers are notorious for overlooking the older homes; that’s part of what has been driving prices down in some of the older communities such as Palmilla, Pedregal, and Cabo Bello. Sellers may offer private financing in addition to reduced prices, making these a very attractive option. Since most of them are structurally sound, the costs to update finishes and bring an older home into the present century can be surprisingly affordable.
Build, buy, or update: The perfect choice is waiting for you.
Carol Billups is broker-owner of Cabo Realty Pros, a general real estate agency in Cabo San Lucas helping clients find their perfect solution for more than 16 years. Her website is www.caborealtypros.com, and she can be reached at email@example.com or by phone at 044-624-147-7541.