What If You Just Bought a Plot of Land and Built a Home?

Podcast Version:

Some people have been bitten by the Stardew Valley bug and dream of having their own farmhouse in a bucolic, isolated villa at least two hours from the nearest city. A place where you’re not surrounded by rows and rows of identical tract houses and McMansions, and can even just buy a plot of land and have your own home from scratch built instead of dropping tens of thousands of dollars on DIY jobs that go horribly and hilariously wrong.

But sometimes you’ve got situations like most ready-made homes sucking ass in terms of accessibility, or you have a large family and need a place that can accomodate them. Or perhaps you want to go the total opposite route and build as small as possible with a tiny house, which is pretty much a studio apartment but freestanding and with fewer or no neighbors.

Want to see if building your own home is feasible? Let’s dive into the steps involved, and also where in the US it’s possible.

Related: Types of Lots | Types of Houses | Origins of Mobile Homes | Suburban Houses | Rural Living | Careful What You Wish For Moving to the Countryside

Where Can You Actually Afford to Build Your Own Home?

Before you even think about looking for barren land and contacting builders, we hate to tell you that you’re going to have to make some of the same considerations as you would with buying a home that’s already been built. It’s all about location, location, and location.

Plenty of realtor associations and the Department of Housing got stats on buying, selling, and renting homes that are already built and ready to be lived in, if someone’s not living there already. But it’s a mite harder to pin down the exact stats on building from scratch, since land grabs and building permits usually aren’t executed by individual home buyers.

But the most recent stats on this actually from from the Census Bureau, which states that 1.37 million permits for new housing units were authorized in 2019. Of these permits issued, an overwhelming majority–701,000–were in southern states, with western states coming in second at 384,000 permits. 184,800 permits were issued in Midwestern states while the Northeast lags behind at 137,500.

To peer even further into those permit statistics, 854,000 permits are for single-family homes and 474,400 are for units with five or more dwellings (two and three multi-family units have had permits issued, but are rarer). So this means that more single-family homes are being commissioned than multi-family, the latter which is virtually always rentals for profit.

As for those 854,000 single-family home permits, how many are for intrepid would-be homeowners who want to buy a plot of land and go from there? The Census Bureau didn’t really dive into that at all. But since there’s so much more development happening in the south and west, we can hazard a guess it’s because land and building costs are significantly lower than they are in the northeast.

You can buy a vacant lot in Los Angeles for as little as $90,000! But while I’d personally love to just buy one up and put two or three tiny houses on it (why have just one?!) if I’d ever leave the hot mess that is The Bronx, they get you on the intensely high building and permit costs.

And a good rule of thumb is that if you’re looking to build in an area as hotly in demand as LA, the land itself is going to cost significantly more than if you went off the beaten path. You don’t necessarily have to go all the way to the sticks of Death Valley (or comparable area) but you definitely want to do your homework on the average land, building, and permit costs before you begin.

Check that Census link and see how often new permits are being issued for the area you’d like to create your new home in. Is there a reason why there’s so many, or few, permits being issued? Watch land deed stats like a hawk.

Finding the Right Plot of Land

When you decide to look at vacant lot and land parcel listings instead of home listings, there’s some magic words you’ll want to look out for: “shovel-ready” and “permit-ready”.

This is because you need to get that permit the Census talked about. But most of all, you need to be prepared to sink a lot of time into researching the actual land plot and what you could be in for. When you’re looking at a ready-made home, you’re doing tons of research as it is: talking to realtors as well as your potential neighbors, where your kids could be going to school, people who used to live in the neighborhood, and so on. Now multiply it by the complexity involved in doing your taxes.

You have to talk to urban planners, architects, state and/or city housing and building departments, utility companies, construction firms and general contractors, and even neighborhood councils, zoning boards, and HOAs. This is because your new land could be sitting on a power line or that all-black Tim Burton-inspired home is violating some variance or clause set by the zoning board or local laws. Even if you’re buying a parcel of land all the way out in the boonies where the music from Deliverance plays as you’re driving to the vicinity, you’re still going to need a permit and to talk to builders. Your land also may not even be workable, which I get into below.

Depending on where you’re going to build, obtaining your permit can take just as long if not even longer than buying a co-op apartment, which is tantamount to having your toenails ripped out one by one with kids’ art scissors and YES, I am still salty about that $7,000 and two whole years of my life I am never ever getting back. The permit process takes about 1-2 years, the more populous and in-demand the area is, the longer it will take.

The good news is that once you have your permit, building usually starts immediately. 90% of single-family home construction commences the same month the permit is received, according to the National Association of Home Builders. But the bad news is that you could be in for a whole lot of expensive and time-consuming gambling if your land listing isn’t described as “permit ready” or “shovel/construction ready”. This is because the land could be completely unusable and you won’t know until the ink on the deed is dry.

Unless you have the time and money to trade parcels of land like one does with Pokemon, you want something shovel ready. This means all the hard parts have been done, and you can build on the land immediately. The problem with this is that the land will now cost 50-300% more.

Suddenly makes the appeal of a move-in ready McMansion so much stronger, eh?

Should You Work with a Construction Outfit or Architect?

Let’s say you got your shovel-ready land in the enclave of your dreams, got your permits sorted out, and you’re ready to start building. Now you need to get an estimate from a builder and choose the right floor plan. But who do you contact? A home builder, general contractor, or architect?

Now, this all depends on your needs, wants, and how much money you got to burn. It took so frigging long to get the permit and you’re dying to move out of your shitty apartment. You want a nice big house, but don’t want that “weird sex cult” vibe. A room for your iguanas and dinosaur puppies to roam and get plenty of sun plus outdoor enclosures and doggy doors, all without losing your home’s heat or ticking off the zoning board. Mayhap your family of humans and reptiles necessitates five small bedrooms instead of the classic design principle of three large ones.

If you contact a BYOL, “build on your own lot” builder, they’ll have their own set of floor plans to choose from. How much you can modify them depends on the individual firm as well as your location. This approach can save you a lot of time and money, particularly if the firm is familiar with the type of land that you’re building on and already has the best floor plans designed for them.

Design-build firms on the other hand will work with you from the ground up to completely customize the property to your specs. So if you want that frog solarium with a running water pump or you don’t even want to bother, a design-build firm could be the best of BYOB and hiring an architect. This approach is more expensive since BYOL builders will charge a few hundred bucks to let you use a prefab floor plan for references while a ground-up floor plan is around $2,500-4,000 depending on the complexity and size.

The last and most expensive and time-consuming option is to get an architect to design your home, but it is how you know you’ll get what you want. Some people hire a builder first then an architect, or you can do it the other way around providing that they work well together. The architect works with your direction to come up with a custom floor plan and building plan, consults with the builder, and creates that dream house you always wanted.

Places like newhomesource.com can help you find the right builder based on the type of home you want to build as well as the location and land type.

Paying for Your Barbie Dream House Property Brothers Mash-Up

First up, you have to think about the same considerations as most would-be home buyers: paying for the building, permit, and legal costs while maintaining your current residence. The time it takes to build the new home also factors in because it can go in your favor, or not as much depending on what happens: more modular homes take 30-60 days to build, while designing a home from the ground up with a design-build firm or an architect can take 4-6 months. This is great if you have a stable job that gives you a raise in that time or your business is booming…not so great if the shit hits the fan like it just did with thousands of coronavirus-related layoffs, or your spouse gets seriously ill and/or loses their job.

Similarly to buying a ready-made home, you need to put down at least 20% of the estimated costs to build the home. The builder or architect can put this estimate together for you in good faith, but you still have to come in aware that the price could exponentially increase during the building process. You’ll have a fixed price in your contract when buying a home that’s already built. But when you’re having the home built, the more customization that’s involved, the higher the cost. Things will happen on the job as well, like the need for a new permit and delays from weather, zoning boards, and pandemics.

In some cases, you will need to put down 25% of the estimated building costs and need to find a specialty lender. You’ll need to take out a construction loan opposed to a standard mortgage. The upside to this is that you don’t need to front 100% of the money needed to buy the plot of land since most of them will cover land purchases, but you’ll still need to factor in 20-25% of the land cost in your down payment.

Construction loans have variable interest which can get expensive and chaotic, so you’ll likely need to refinance if you don’t have an inheritance or some other large cash windfall to repay the loan after making interest-only payments for about a year. You might need to go through the entire mortgage application process instead of doing a “straight” conversion via bundling at closing, which is a journey in and of itself. But it is an option to consider if pre-built homes where you live are too expensive and/or don’t need your needs and taste.

If you’re going to go this route and made it through the land buying part with your cash and sanity still intact, remember to have a construction attorney look over both the builder’s warranty and the architect’s or builder’s design plans to make sure it’s all up to code.

But if you’re like most of us, you’re just going to be drooling over the final results on Zillow.