Upgrades and upgrades… new construction
June 28th, 2006 by KenricToday I met with the sales lady for a new construction home in north Phoenix that I posted about here. What I was mainly interested in learning at today’s meeting was:
How many homes in the subdivision
How long is the build out for the entire subdivision
Which lots are available
What are the builder incentives
What comes with each home
How much are the options
I learned that this is phase 1 of the subdivision which has 700 homes. The builder is hoping to complete the entire subdivision within 4 years. As usual in early stages of build outs, the lots suck. Builder’s usually save the good lots for last. See right now I can buy a 3200sf home for $350k on a crappy lot. If I want the good lot, which is available in Phase 2, I’ll have to wait… by that time the same house will probably be $400k and the lot premium $40k, so that same house will cost me $440k. As an investor I never pay for lot premiums because once the subdivision is done, buyers don’t know which lots are better. Think about it, have you ever said I like house #1 more because the lot is 15′ deeper and 5′ wider than the other house so I’ll pay $20k more than the exact same house on a regular lot? So if I were to buy in this subdivision, I’d get a regular lot and save the $20k for upgrades.
Which brings me to upgrades… I know why the base prices are so cheap in this subdivision! It’s because the houses come with nothing. Buying this house you will get optioned to death.
Check this out.. base price is $350k on a 3200sf home. That is great, $109/sf. Now let’s add options.
These are what I call necessary options. You would be stupid to build a house in this price range without them.
Increase ceiling height from 8′ to 9′ (yeah I can’t believe that’s an option) $6,000
Covered Patio $5,000
Separate tub & shower $3,400
Upgrade bathroom from laminate to marble counters $2,000
2nd sink in master bath $1,000
Recessed lights in kitchen $1,000
42″ cabinets $1,350
Upgrade countertops ($3,000 guess)
Upgrade carpet and padding ($3,000 guess)
Upgrade vinyl floor to tile ($6,000 guess)
So I’m looking at about $30,000 in upgrades which puts the house at $380,000. This is still a pretty good price. But I hate paying alot in options because as a dollar for dollar return, it’s not that great. I say let your neighbors option up their homes and you ride their appreciation.
On SFH#1, I paid $2,500 in upgrades and on SFH#2 I paid $10,000 in upgrades. What amazes me is that most people upgrade ALOT! My neighbors have done anywhere from $30k to $100k in upgrades! I walked into a house with $80k in tile upgrades alone. Sure the house looked nice but there’s no way it will sell for $80k more than mine.
On SFH#1 I paid $243k with minimal upgrades (I did add a pool for $22k), my neighbors paid anywhere from $270k-$295k for the same home due to upgrade overload. They go to sell their house at $440k as loaded with upgrades. I go sell my at $440k with a pool. Guess which one sold first. If I didn’t have a pool, my price would have been $430k, just slightly lower than them.
On SFH#2 my neighbor said he put over $60k in upgrades in his house. That made his house cost $20k more than mine. His house is 3/2 2600sf, mine is 5/4 3000sf, is it possible that he would be able to sell his house for more than mine?
Sorry for that rant on upgrades… getting back to this new construction home. So I’m at $380k for a 3200sf home that will be ready in 8 months. My concern is that I’m in Phase 1. That is either good or bad. It is good “if” the builder keeps raising prices because I will have 2-4 years of price increases as the building progresses. It is bad “if” the market tanks and the builder lowers prices because then I can’t compete with them in price and will have to hold onto the home until the builder is done 4 years later.
Right now I’m 50/50 on pursuing this. I am purchasing at $118/sf in an area surrounded by homes at $180/sf-$200/sf. I’m worried that this subdivision will pull down the comps in the area. With 700 homes on the way in 4 years and no more waiting lists or lotteries, buyers can just bypass the resales and buy in this subdivision. This will cause the people selling resales to lower their prices to compete. If this happens the surrounding homes may start to drop to $160/sf or $150/sf., then this new construction purchase does not become a good deal.
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