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Should You Build a Custom Home or Flip a House?

Empty room before and after house flip.

Building a Custom Home 

The appeal of building a brand new home is alluring. You get a beautiful, ready-to-move-in oasis with no sweat off your back. And a custom-built home, in particular, can offer a personalized touch crafted exactly to your tastes. But there are some considerations you should mull over before you decide to go through with building a custom home. 

Spec and Tract Homes vs. Custom Homes 

First, let’s go over the basics. There can be a lot of confusion around what defines a custom home and how it compares to its other new-build counterparts. So what is the difference between spec, tract, and custom homes?

In basic terms, a spec home (abbreviation for speculative home) is a new-build that’s ready for potential buyers to move in right away. This is a better option for those who are looking to sell the property once completed (investors). Investors buy a lot or piece of land, build the house, and then sell it. In some cases, homebuyers may be able to pick out finishes if it’s still under construction. But the buyers have no say in the actual floor plan. 

Tract homes -or production built homes- are built on large plots of land bought by a developer or builder. Often, the company will offer a selection of model homes for the buyer to choose from. These are often built at a large volume and don’t provide much room for customization. We could call this, the stereotypical neighborhood home of the culdesac.

Generally, custom homes are built in small volumes on plots that the homebuyer selects personally. In most cases, those interested in building a custom home choose a builder first and they pick out a plot together. Although a high-end, luxury home might come to mind when we think of custom homes, they can also be small to medium in size as well. 

What to Consider When Building a Custom Home

It’s important to thoroughly inspect a lot before buying; there could be hidden problems that will slow or impede your building process. Be sure to determine the setback of the property. This is the boundary that you can build the house on. Other considerations to keep in mind are features such as topography, soil quality, storm easements, title issues, sewer hookups. 

Financing is another important factor to consider. New-home construction financing can be tricky territory. It becomes more complicated if you intend to use the home as an investment property. As you may already know if you’ve invested in property before, it’s more difficult to secure a loan because investment properties pose more of a risk to lenders. 

Other Considerations For Investors

It’s important to be aware of a few things when pursuing a custom home build project. Be sure to survey the surrounding area before you purchase a lot. Are there any other new-builds in the neighborhood? If so, are they selling or sitting on the market?

The more turn-over you see in a neighborhood, the lower the risk in building. It can be a hunt to find the perfect lot for your potential new-build. You should also keep in mind the build time for your project and if you can handle the holding costs in the meantime. 

Benefits of Building a Custom Home 

The sky is the limit when you commission a custom home. You can truly let your creativity run wild. Building custom can be a one-way ticket to your dream home. And, although buying an older home seems like a safer bet, it’s not a bad move for a first-time investor to go the custom home route.

When you decide to go with a custom home, you can choose from an array of design options. From floor plan to kitchen countertops, your home can be as unique as you are. Going the custom route provides you with a blank slate to express yourself with. 

One of the major benefits of building custom is leaving the stress of maintenance behind you! A brand new home won’t offer nearly as many surprises as an older home. Of course, there might be a few repairs needed here and there. But, unlike an older home, you won’t have to concern yourself with issues like possible asbestosis, old heaters, collapsing roofs, or poorly sealed spaces. 

Flipping a Home

With shows like Flip or Flop and Fixer Upper playing a prominent role in shaping our recent zeitgeist, flipping a home has never been more popular. This can be a fun project for a first-time home buyer and a lucrative venture for an investor. Not to mention the rich history and well-established neighborhoods older homes have to offer.

According to ATTOM Data Solutions’ U.S. Home Flipping Report, flipped homes accounted for 6.2% of all home sales in 2019.

So what should you know before flipping a home?

What to Consider When Flipping a Home 

Older homes come with a lot of baggage. Much of the time, these homes haven’t been well-loved for quite awhile. And even when they’ve been tended to carefully, unanticipated repairs could still crop up along the way. This can lead to a lot of stress during the renovation process. 

Before you get your heart set on your fixer-upper, budget carefully. Leave no stone unturned when evaluating potential repairs. And once you have a good idea of how much your renovation cost will be, be sure you have enough set aside for any unanticipated problems you may encounter. 

This is the downside to flipping a property instead of building something new. Even if you did all of your budgeting, since it’s an older house, new costs could appear out of nowhere.

Obviously, another downturn in flipping houses is the location. You’re stuck with wherever the house has been located for all of those years. So, be sure you absolutely love where you’ll be situated or, if you’re an investor, where you’ll be selling.

Be sure you understand the time commitment of flipping a home. This isn’t going to be something you can complete over a long weekend. Between finding the perfect property, hiring the general contractor, completing the renovation, and inspections, you could be looking at months of dedicated work.

Other Considerations For Investors

Just like any business, flipping homes takes a certain level of knowledge and experience. You can’t go into an old home without knowledge, screwdrivers blazin’, and expect it to look like a remodel on HGTV. This isn’t a DIY project by any means.

You have to do extensive research and check your work to assure your project doesn’t flop. You could lose a lot of money if you’re not well-equipped with the skill, patience, and time necessary to pull off your project.

Benefits of Flipping a Home 

Flipping a home can be an extremely fulfilling experience. If you’re flipping your personal home, you’ll gain the hands-on knowledge it takes to pursue a renovation project. This could give you a great foot in the door for future investment endeavors if you so choose. 

When you decide to flip a home, you get the unique opportunity to add your personal style to a piece of history. A lot of the time, older homes have features not as commonly used in new-builds such as wood-burning fireplaces and quirky design elements from the past (like that wallpaper or green carpet).

Although you’re somewhat limited on customization, there’s plenty of room to play. And, at the end of the day, you get the satisfaction of breathing new life into your space. 

Renovating an older home will add value to it. Even if you don’t plan on selling your home right after you flip it (or ever), you can get a house appraisal and see how it compares to other homes in your neighborhood.

So Which Is Best For You?

Every buyer’s situation is different. It’s hard to give a black-and-white answer to which option is better. They both have their benefits and drawbacks. Whether you are a homeowner or an investor, you’ll need to outweigh the pros and cons aforementioned.
H3 Construction & Design is a wonderful resource to lean on when weighing out which route to take. With our expertise in design and construction, we can steer you in the right direction for a flip or a totally new home. Schedule a consultation today!