Constructing yourself or buying property?

Hi Mustachians,

My girlfriend and I have been considering buying a house.
We visited the bank to review our options and it seems that we are close (not there yet) to having enough to pay the 20% down payment for a 890k home (which is still under construction).

Amongst the topics we discussed, the bank advisor told us that there is the possibility to buy a plot of land and to use it as collateral for the 20% down payment for construction. In addition, the notary fees would be less as you’d pay them initially on the land only. This would result in us paying considerably less on these fees.

It kind of sounds too good to be true. Why would not every person buy land and construct shortly after? Is there perhaps a delay that prevents you to construct? Would you pay additional fees once you start construction?

In order to pay for the plot, we’d like to empty the 2nd pillars as a priority, but wonder if it is accepted to use it for buying land. I tried looking online for more information but it mainly states that the 2nd may only be used for buying property… So I gave the forum here a shot.

I thank all of you reading this in advance!

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Main counterarguments would be :

A/ to find a plot of empty land is not easy, especially in cities/towns, so basically you will have to move to the countryside. Plots in cities tend also to be too large for private households, since it is thought to densify with apartment buildings
B/ Construction takes time, you need to rent out a flat for an additional year (at least)
C/ A lot of work and stress, especially if you chose the wrong constructor
D/ Risk (Legal, Warranty etc.)

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Thanks for putting things into perspective!

Here are two other considerations:

  • In some states or counties, it is currently not possible to build a villa (individual home) for densifications reasons. So buying remains the only option if you want a villa.
  • Ideally, you should know a little about construction and be behind the construction often in order to check that everything is done properly. Most of the time it’s good, but I have heard many horror stories about construction work
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I am in the middle of one such transaction in Basel currently where there are plots of land advertised with a ‘model’ house on top. Usually a real estate agent partners with a builder/architect/PM to put the ‘package’ together. Sometimes an old house would be torn down so in fact it’s not an empty plot but they factor the demolition into the price. We bought the land and land transfer taxes were deferred as long as we stay in the property for 5 years (or is it 6?). The bulk of the notary fees were for the mortgage lien to be registered. As for the Pillar 2, you can pledge or withdraw. As interest rates are so low (we just negotiated 0.55% SARON), and if you want to in the markets, you might want to consider withdrawing the pension for 10% of the deposit, contribute the other 10% from own funds, and then invest the 10% that the pension will now cover in the markets - if you think you can get a return greater than the pension rate of return.

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The big advantage is that, since you are building from scratch, you can design your home to suit your dreams.

As already stated, part of the disadvantages is that you bear additional risks. I’d particularly check:

  • Zoning limitations/construction requirements: not all plots of land are created equal.
    Density, height, distance to the border of the parcel/other buildings, requirements for a set number of parking spots, and other things change from one place to another.
    Some places will have specific requirements as to what the building must look like (size of windows, slope of the roof, others) and special restrictions may apply (Lex Weber, some places with a public central heating network have made it mandatory to use it, others).

  • Rights and limitations on the land registry. In particular:
    The rights other parcels have on your land (access, pipes, restricted proximity to their parcel, restricted height, others).

  • That the parcel you’re planning to buy has all the proper rights registered (if it’s using other private land for it: access and pipes at least). I’d not buy a land if those aren’t already set in stone. I’ve seen horror stories where projects have been made way more difficult because the road leading there was a private road, the previous owner hadn’t participated to its financing and some neighbors had decided that the new owner should not be able to use it, or pay insane amounts for this right. Which reminds me: I’d specifically check that if there is an existing road accessing the parcel, whether or not it is a private one. Private roads come with extra costs (maintainance, dealing with the snow).

  • Natural hazards: check for landslides, floodings, rockfalls and debris flows in particular. It won’t necessarily make the land unbuildable but could generate extra costs. Of course, you’d be carrying the associated risk if a low degree of danger exists and you decide to build on that land. If you’re planning to buy a land with important slope, the project will cost more because you’ll have to dig into that (and may find rock or unstable land that could up the costs of the project by a good amount).

  • Additional miscellaneous restrictions: you can’t build close to the forest (forests are administrative areas, there can be no trees and still be a forest, check for it if you’re targetting rural areas), nor right next to rivers. Some areas have environmental restrictions on them.

  • Personal preferences/specificities of the neighborhood. You may not like noise so industries, airports, high frequentation roads and the likes may be a disadvantage. Farms come with specific smells, other elements may have disadvantages in your view. Think future development: what is a pasture today could be a building tomorrow if it’s on constructible land.

I’d consult with an architect at this point in your project already and see with them what would best suit your needs. You can then plan accordingly and come back to them if you decide to build on your own (never, ever try to build on your own without a qualified professional assisting you, there are a lot of blind spots an untrained person is likely to miss. Also, be aware that “Architect” isn’t a protected profession. Not everybody who claims to be an architect has the proper skills. Check for their reputation and/or their memberships).

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A friend of mine recently went down the buying land and building path. He faced several challenges, 2nd pillar could not be taken out just for the land because it explicitly says it’s for self used property. Also the costs were initially stated to be around 1.2M (for around 180sqm livable space) but he’s now more realistically facing 1.5M costs which will be difficult to get a mortgage for because of the income levels. Also property with land always comes with work around the house, that’s something I wouldn’t want to deal with.

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If you chose a good architect or office, you can (almost) drop these two arguments…
This could lead to a new topic: “How to chose an architect and how this choice can save you a lot of headaches.” :grin:

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I think that would be a very useful topic. You seem to be among the best qualified to start it, any chance it could manage to find a spot in your schedule?

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This is very important! Check past references. The architect should be able to explain you the whole process and show you past projects, or invite you to visit those projects… + Most of the cantons have an online site (in French “Guichet Cartographique Cantonale”) where you can find important informations about the plot of land (potential, density permissions, rights, owner/s, and thematic cartographic informations.) But normally to interpret some informations you’ll need a professional that checks the building policies. An architect can also check the potential of a plot before you actually buy it and he can also prepare a budget (let’s say ±20% or ±15%) for a project, either by referring to past projects, either by asking companies for quotes for that particular project. Sometimes companies prefer to be sure that the project will have a green light, but some are ready to “play the game”. All of these informations will not guarantee a perfect smooth ride, but at least a less bumpy one. Don’t forget that a building site or a transformation of an existing villa can still be a source of unexpected surprises (i.e. a rocky soil that makes it difficult to start the fondations or a subterranean water source that floods the building site or the cost to scan and remove asbestos from “old” houses.)

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hi,

did just that. we were looking for a house to buy but couldn’t find anything we liked within our budget. So I started to look at land and construction prices and realised that we can build what we want for less than what we would need to pay for something already existing. My banker immediately agreed to finance the project, as they think that the value of the project will increase significantly the moment that the construction is completed. “Everybody wants to buy a nice house, but nobody wants to go through the hassle of building it.” was his explanation on the price difference.

And, as you mentioned, the admin fees for buying a house are significant (based on the total value of the house), and much lower when you only have to pay them for the value of the empty plot that you’re purchasing. We have probably avoided around 120k of fees.

Big downside of building is that it takes time and there’s considerable risks and delays: construction permits, neighbour discussions, architects, and just check the lumber/wood/commodity prices at the moment.
But these risks are exactly what makes it a financially interesting proposition (potentially…).

And then of course there’s your time and energy that you will have to spend but that can also be challenging in a good and fun way (if you’re a masochist…)

good luck!
A

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This. I’d have a plan for where to live if the construction encounters delays and keep some leeway in the budget for unplanned costs. While the building experience can be a “building a dream” adventure when we’re correctly prepared and relying on the right professionals, it can also turn into a nightmare if we’re not. I’d not go for building on my own if my mortgage was already stretched thin on the basis of the architect price evaluation.

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yes, but on the other hand, no risk no fun and it’s all part of the ‘human experience’, right? :sweat_smile:
but i fully agree that i wouldn’t do it without some healthy financial reserves as a buffer for the unexpected

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Let us know in 24 months :sweat_smile:

It is possible to frame a part of the “unexpected” and allocate a % of the budget. The unexpected can take different forms and even the construction system can help to tackle it, but bear in mind that one needs to make choices. This or that, this color or that finish surface. All of these ‘small’ options count. They will have a specific weight in the budget but they will also be your ‘everyday’ background scenario :house_with_garden:

When requesting quotes, ask your construction manager to submit to different companies (this is basic…) but it’s also important to be very precise in the description of the work or product. Sometimes small omissions or imprecisions can have an impact. It is important to compare different quotes correctly. Another small move is to ask the company to propose an alternative product that is equivalent and that has great-value (better quality/cost ratio) :building_construction:

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I find the idea of building exactly the house you want (within your budget) excellent and I would be willing to spend the time to follow the project. But how can it be cheaper than buying something already build? Ok you can find architects that offer very nice custom house for families (6-7 rooms) for 600-800kfrs but how do you get a land to build in a high demanded area? When I look at prices in Vaud (like on Homegate), it’s astronomical, land for an individual house are always more than a millions (or slightly below but in very remote village).
You can find a house within 5-10km of Lausanne for 1.3-1.5millions but if you have to put this among of money only for the land, I don’t see how it could end up cheaper.

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Maybe true if you’re looking close to population centers. I’ve decided to move into the mountains and have found that land + construction will cost me approx. 1.5 Mio compared to 2+ Mio market price for objects comparable in location, size and quality.
The bank seems to agree.

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Ok if you choose a village in the mountain I can guess you .might get a land for 600-700k. Still crazy to think that land cost as much if not more than the house itself.

I have been in the area of Solothurn, same around Biel, where you can find in village 3-5km away from the city some house to sell at 700-900k, with land and everything, and that decent house in size, age, state and location, I have even seen new projects in this price range.

So what does it mean? Land is (almost) free in these regions? Or the house value decrease and only land can appreciate, so the investment is rarely worth it outside very high demand area? And in high demand area price is way too high to be reasonable for mustachians?

That a bit sad that I might never be able to retire early in the area where I’m coming from and close to my family and friends.

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I’m sure you’ve done your due diligence but for other people reading: don’t forget to check if the land is restricted to primary homes only before buying. This can make a big difference in more rural areas, and especially tourist resorts. It can be an opportunity (cheaper land) or a cost (having a hard time to sell the good when one wants to move elsewhere).

Edit: Oh, and definitely also check the status of the zoning plan, i.e. : if it hasn’t been remade in the last few years, it will have to and some buildable areas might not be still buildable in the future. I guess what I mean, in short, is to check with a local trustworthy professional what the real status of the land is and could be in the forseable future before buying - also ask the local administration, they can be helpful although if you’re aiming for too small a village, may not have all the resources available to direct you efficiently.

I think society is designed in that way on purpose: early retirement isn’t part of the way things are planned for and isn’t meant to really be reachable working within normal parameters. Salaries and cost of life are made to reflect that.

In order to break through, we need either an exceptional salary, to cut expenses drastically (I’m trying to be aware of my spendings and I’m still a Mr. Spendypants myself; getting actually low enough so as to have a decisive enough savings rate with an average salary is very hard) or to arbitrage the difference in the cost of living of diverging areas.

When things are done right enough (and they normally are in Switzerland), we are able to live a decent life while living close to family and friends. That’s the way it’s meant to be by default.

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Yes on all your points. Lex Weber has created so good buying opportunities for primary residences.

The zoning issues are very tricky indeed and I have purchased land under the contractually assured condition that it is constructable, even under the on-going zoning discussions.
In fact, one of the reasons for going ahead with the purchase and project is because I think that it will become more and more difficult in the coming years to purchase land and build family homes, because of the increasingly restrictive regulations and the land-grab by all the big developers buying up land for multi-apartment or hotel projects.

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Near Gstaad, 2000m2 land for 400k, but restricted to primary residence only (lex Weber).
Construction project anywhere between 750k-1 Mio. Existing objects in similar location and size easily go for around 2.5 Mio.

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