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Thinking about building? Understand your options.

Tossing up between a house and land package and becoming an owner-builder? Here are some things to consider.

If you’re looking to create your dream home (or at least looking for something that meets your specifications and budget) building could be for you. When you’re thinking about building, you can choose to outsource the heavy lifting, or consider a DIY approach.

Picking up a house and land package means having the process largely taken out of your hands. The middle ground in terms of involvement is buying land, then engaging a registered builder. Or, if you’re really set on rolling up your sleeves, becoming an owner-builder means completely overseeing the project yourself.

Buying a house and land package

If you’re looking at a house and land package, you’ll generally find that the parties you’ll be dealing with are the developer (who will probably be the land owner) and the builder or project manager. Before you commit to a package, make sure to take the time to be absolutely sure about what you’re going to get, what will be included and what you’ll have to pay extra for. 

A house and land package will generally require you to take out a construction loan. These are structured a bit differently to a regular mortgage. When you have a construction loan, you drawdown at different stages of the project.

Typically, your build will be divided into three to six stages, with a drawdown at each stage. You’ll pay interest on each drawdown from the point that you receive it. 

A possible benefit to choosing a house and land package is that the build may start in a shorter timeframe. If timeframes are a concern, consider asking your lawyer to make sure that your agreement has a ‘liquidated damages’ clause, which could mean that you get financial compensation if your build isn’t finished on time. Remember though that your builder generally wont receive all the funds until final drawdown, so they already have a powerful incentive to finish the job on time.

Building your house

Watch any episode of Grand Designs and you’ll realise that the path to building your own home does not always run smoothly. Still, if you’re keen to take the DIY option you can consider engaging a registered builder, or becoming an owner-builder. As you might expect, there are significant considerations to be made before deciding which approach is for you.

 

Engaging a registered builder

You can choose to engage a builder to complete your project. This is going to be an ongoing relationship, so take the time to find a builder that you’re happy to work with, who shares your vision for the project, and can meet your timeframe. 

Before you make a decision make sure you meet your builder. You may want to consider asking them to provide a written quote for your project – and if you can, visit properties they have completed. It also never hurts to do a little searching online – any unhappy customers should come to light pretty quickly. 

Once you have a shortlist, check that your frontrunner is registered with the relevant authority in your state or territory. Also, ask your lawyer about a provision for home warranty insurance (also called domestic building insurance) in your agreement. This insurance can give you protection if your builder can’t complete the project due to insolvency. 

Becoming an owner-builder

If you’re thinking of becoming an owner-builder, you might be thinking about saving money and having more control over the finished product. Both are great reasons to explore this option – but the success of either will depend on your skill and experience. 

The other crucial thing to consider is whether you have the time to devote to a building project. Remember a standard build generally takes around 25 weeks and could be much longer if your project needs demolition permits or other council approvals.  

Still, saving money and enforcing your standards sounds pretty good. But as an owner-builder you become the ‘organiser of trades’ and you’re responsible for everything related to the project. Basically, you also assume all the responsibilities of the registered builder. Unless you’re feeling very confident in your experience and expertise, this could be big a risk.

Another key consideration about becoming an owner-builder is that many lenders will only finance the construction of homes built by licensed builders. So if you’re planning to do a lot of the work yourself, make sure to ask your lender ask about their requirements early on. 

To sum up

  • When you choose to build, you could elect to buy a house and land package, buy land and engage a registered builder, or do the build yourself as an owner-builder.
  • If you’re set on building, considering your timeline and budget will help you to decide which method will suit you best.
  • While becomming an owner-builder could mean some financial savings, this is a skilled role and you should only consider taking this on if you have experience in project management.

Calculators to help you plan

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Connect with a First Home Coach who'll guide you through the process of buying your first home ­­ from start to finish.

Talk to a First Home Coach on the phone, or drop in for a chat at one of our ANZ branches.

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Any advice does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you and read the relevant Terms and Conditions, Product Disclosure Statement and Financial Services Guide before acquiring any product. 

Reports are based on a range of data sources, are not indicative of future performance and are only for personal domestic use. Price estimates may not be available for all sales and properties.

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