Last month, the LANDTHINK Pulse posed the following question to our audience: What would be your reason for buying land in 2022?
Our informal online survey revealed that 39% of respondents indicated that their primary purpose for purchasing land in 2022 would be to live or build a home on the property. The lure of rural land continues to be a bright spot as a virus-weary population limps into the third year of dealing with the pandemic. Americans continue to yearn for greener pastures and wide-open spaces. The new world of remote jobs has small towns exploding with growth and outdoor recreation is surging. A rural renaissance is happening as people seek to have more space and a better, more affordable quality of life. Whether your dream is to buy rural land with an existing home, build your dream home, or design a homestead property and be more self-sustaining, there are many options available for interested buyers.
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If you have already started looking for land on the popular land listing websites like LANDFLIP, you’ve probably learned that bare land is at a premium in most parts of the country. Purchasing land is a major life decision and a serious investment. If you’re buying land you plan to live on, one of the biggest dilemmas is whether to build a new home or buy land with an existing home.
With home inventory tight across the nation, many would–be buyers are considering building their own custom home rather than buying property with an existing one. Building a home might seem cheaper than renovating an older home to meet your needs, but the cost difference might not be so huge. In today’s climate there are so many variables, that it’s hard to say with any degree of certainty.
At face value, it seems like a simple decision. Newly built homes are – well – new. It’s highly unlikely that a new home will need any significant repairs for at least 7 years, and in most cases those should be covered under warranty. Everything is in your hands with a custom home and you have total control over the design and layout. You get to truly craft and tailor the space to fit you and your family’s lifestyle and wants so that you can love and enjoy it for years and years. On the other hand, you may be limited as to when you can build your new home, and you may find that the costs of new construction outweigh some of the obvious lifestyle advantages.
Buying an existing home has its benefits and drawbacks. You can move into an existing home much faster- they don’t require expensive electrical grid or utility connections. After you complete the mortgage process and close, you’re set to move in. While it’s a new house for you, it’s technically used. If the home is older, you might need to pay for repairs sooner than you expect.
Buying an existing home means you can make upgrades as your budget and time allows, rather than having to focus all of your resources on a major, months-long construction project. But buying in one of the hottest real estate markets in history means competition for the choicest real estate.
Whether buying a pre-existing home or build from scratch, cost is a major concern. The current economy and property market might swing your decision on whether it is better to build on your land or buy land with a pre-existing house in 2022 or over the next several years.
Inventory Shortage: The major challenge in today’s housing market is that there are more buyers looking to purchase than there are homes available to buy. Housing stock is dire. High demand for homes in the first half of 2021 caused the supply of homes for sale to fall to a record low last December. Although homebuilders are increasing supply, the gap will likely take years to correct.
Labor Shortage: The labor shortage is wreaking havoc on the housing market, forcing contractors to scramble to hire enough workers. That’s bad news for consumers because it generally translates to higher prices, construction delays, and could also contribute to a decrease in quality.
Supply Costs and Shortages: An intensifying global supply chain crisis has caused a shortage of building materials, sending prices soaring. Lumber prices have nearly tripled, causing the price of an average new single-family home to increase by more than $18,600, according to the National Association of Home Builders standard estimates of lumber used to build the average home. The Biden administration delivered a blow to potential home buyers by doubling tariffs on Canadian lumber shipments into the U.S. from 9% to 17.9%. This has led to higher prices for new homes and heftier fees for renovation projects.
Other important considerations before you decide to build a home on your land or buy prebuilt:
Financing Options: Financing a home build is different from financing an already-built home. With an existing home, you have home loan options like a conventional loan and an FHA loan. To finance a home build, buyers will need to seek out lenders that offer raw land loans, construction loans and mortgages. A construction loan is a short-term loan that gives you the funds needed to build a house on a piece of land or renovate a home during the construction period. The loan is used to cover nearly everything that goes into building a home: land, labor, permits and building materials. There a quite a few different types of constructions loans that you may encounter, and the borrower should clearly understand what a construction loan entails, consider carefully the terms of the loan and its impact on your finances.
Costs of Ownership: In addition to the price of purchase, there is also the costs of ownership to be considered. New homes are more energy efficient than resale homes, having been built with newer building materials, better insulation, and state-of-the-art technology. Energy efficient homes will cost less to operate than the vast majority of existing homes. While it may increase upfront costs, savings made over the lifetime of owning your new home will outweigh the initial investment. Also, homeowners insurance costs are usually higher with an existing home than with a new construction home. Some preexisting homes come with out-of-date features, which impact your insurance rate.
As you consider buying rural land to build on or buying property with a resale home, it’s important to recognize that both processes include significant costs and stressors. It is important to fully consider the advantages, as well as the disadvantages. New construction will be the logical choice for many. For others, an existing home will tick all of the boxes. The evaluation process for land you intend to build on comes with a different set of considerations than other types of land purchases. Secure the services of a land agent who will bring to light some of the not-so-obvious aspects involved in purchasing land.
The LANDTHINK audience indicated a variety of reasons for buying land. It was a mixed bag of results, but the largest percentage (39%) indicated that their reason for buying land in 2022 would be for Living/Building a Home, followed closely by 20% of our audience, who said that they would buy land as an Investment. A large percentage (19%) said that Recreation would be first on their mind when looking for property. Only (10%) of respondents said they would buy land for Farming, 7% indicated they would buy land for Income Production, 3% said they were interested in buying land for Ranching/Cattle and just 1% said they would buy land for Development.
LANDTHINK would like to thank Hayden Outdoors Real Estate for sponsoring the March Pulse and for choosing a very interesting question to pose to our audience. Hayden Outdoors is currently licensed in real estate in Colorado, Kansas, Montana, Missouri, Alaska, Iowa, Oregon, Idaho, Nebraska, South Dakota, Oklahoma, Wyoming, New Mexico, Texas and Utah. Outdoor recreation is deep in their hearts and minds, and it is what drives the team at Hayden Outdoors. Hayden Outdoors represents buyers and sellers of the finest land, ranches, and farm properties for sale. Contact their team of brokers and agents to help you sell or buy your next property.
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