There’s a scene that plays out all too often at Gerald Christie’s regional district office: Someone will walk in with high hopes to build their dream home on an undeveloped piece of property they just bought, only to find out the massive financial hurdles they didn’t realize they’ll face.
Mr. Christie, manager of development services for the Columbia Shuswap Regional District (CSRD) in Salmon Arm, B.C., said those owners could have saved themselves a lot of grief if they’d done their due diligence. Interest in undeveloped land and the money spent building homes has skyrocketed in that part of the province’s Interior. The CSRD issued 1,187 building and planning permits between 2016 and 2019. That number nearly doubled to 2,177 permits for the period from January, 2020 to November, 2022.
In larger regions such as the Greater Toronto Area, undeveloped land remains a fascination for people looking to build the home of their dreams, while others look to demolish downtown homes in order to build a more modern residence. But Mr. Christie says that kind of build can bring either great joy or great pain, and the difference lies in how prepared you are. There are so many factors to consider: Is the soil stable? Will it be possible to set up services like electricity? Do your dreams clash with the reality of local bylaws?
The Globe and Mail spoke with real estate and development experts to compile a list of considerations before taking the plunge and buying land that could one day support your own home.
Talk to your local government about your plans
Before you think about financing, contractors or countertops, Mr. Christie says it’s imperative to make contact with your local government to better understand what you can and cannot do with the land you’re thinking to purchase.
Some of the vital information they’ll provide is how much of your land you’re actually allowed to build on and limitations to what your structure can look like – how close to the water’s edge you can build, if there’s water connected to your property, for example.
Moreover, Mr. Christie said local governments will be able to give you preliminary information about whether the land you’re buying might require expensive work to stabilize it. He says many people from large cities buy plots in his region sight unseen because they think they’re getting a great deal, but then realize it’ll cost tens of thousands of dollars to clear away unstable topsoil that can’t be built upon.
“They think it’s so cheap, but then they get there and realize that all the money you saved will be eaten up by engineering costs,” he said.
“We deal with a lot of folks that don’t go into these kind of situations with their eyes wide open.”
Budget for a healthy overrun in costs and time
Tim Syrianos, owner of Re/Max Ultimate Realty in Toronto, says you should add at least 15 per cent to 20 per cent to your budget to account for cost overruns in the process of building a home. Typically, there’ll also be a 15-per-cent to 20-per-cent overrun in the amount of time it takes to build a home.
Building a home is a complicated process with lots of moving parts. Any unforeseen challenges such as delays in lining up contractors, rising costs of materials and issues with the land itself can quickly add up.
One way Mr. Syrianos says people can mitigate cost overruns related to materials is to purchase as many items ahead of time as possible such as drywall. Not only does that protect you from rising prices in the future, but it also prevents delays while waiting for goods to ship in.
Mr. Christie said he’s seen people wait more than six months just to have a garage door arrive. Supply chain issues notably remain pervasive and can create an expensive logjam in the building of your home.
Prepare for a lengthy mortgage process
The financing process for a home-building project can make a basic home purchase seem like child’s play. Mr. Syrianos says the first hurdle is that appraisers are usually much more conservative when evaluating land compared to a home. That means you’ll likely be required to have more cash to put toward the property to make up for any discrepancy.
Wayne Germaine, owner of Valhalla Path Realty in Nelson, B.C., said brokers may also look more closely at your financial standing because of the risk involved in a home-building project. He added that you’ll need to get a firm quote on costs and a detailed plan from a qualified builder. The bank will study them before approving you for the value of both the land and projected building cost.
Even then, the money will not all be released at once. Mr. Germaine says portions of the money are released as your house progresses through stages of its build. Some of the major stages include when the foundation is laid and when the framing is completed. Banks will generally require an appraiser to confirm each of these stages, which Mr. Germaine said can cost roughly $800 a visit in his region.
Of course, if you have more cash in hand, you’ll have more options. A purchaser could buy the plot of land outright and may have more freedom when it comes to the process of building. Cash is particularly valuable when building a home because construction loans can carry higher interest rates.
Expect costs related to land engineering, permitting, setting up hydro
It’s likely you’ll be buying land that doesn’t already have services connected, especially in more rural areas. The cost of servicing your home should not be overlooked, and could be much more expensive in remote locations.
For example, some properties in Mr. Germaine’s B.C. region can’t be connected to a sewer system, so owners will have to budget anywhere from $20,000 to $85,000 to have a septic tank installed. He said a rough estimate for setting most services such as electricity and gas for a single-family home would cost around $40,000. There could be engineering expenses such as bulldozing loose topsoil to get to more stable ground, or diverting groundwater – which will also extend into the five-figures.
Then there are the permits. Regional governments such as the CSRD in B.C. often charge less for them: Marty Herbert, team leader for building and bylaw services, said a single-family home with a construction value of $400,000 could expect to pay roughly $2,400 in permits, although that number would likely be much higher in municipalities.
There are more regulations in municipalities, and everything from moving a pile of dirt to chopping down trees could require permits, depending on your local government.
Be aware of the logistical challenges
In the Toronto area, Mr. Syrianos says the average person building their own home is definitely not a first-time buyer. They’re generally in their 40s or 50s, and have stable finances that allow them to deal with the uncertainty that comes with such an involved project.
Building a dream home is not for the faint of heart, especially in today’s market where the supply chain has made materials difficult to access and the flow of people into more rural areas has created a shortage of contractors.
“Gone are the days where you call up a contractor and they’re on site in six weeks,” Mr. Herbert said, adding that many contractors are telling him they’re already booked up for all of 2023.
It used to be possible for a project to be completed in one building season, he says. These days he’ll see some projects go for two years, so it’s imperative that you can financially sustain that long of a project.
The payoff, however, can be glorious. With proper planning, Mr. Syrianos says you can attain a dream home in a dream location.
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