My husband, Taylor, and I just made our first huge purchase together… a new home!! Well… honestly, we’ve lived together the past 2&1/2 years. So while we have rented a home before, we feel like this will technically be our first real “home”.
It’s a place where we can add all the crown molding we want, and paint every wall the color of our choice. We feel like little kids getting their first lollipop (maybe even better). But before we made any decision, we had to compare: buying versus building a home in Texas. Which is the better choice? We had to figure out what was best for us personally. Truthfully, there were a LOT factors we had to consider.
With so many new Texas transplants, I felt to share the pros and cons of buying versus building in Texas. Before we start comparing, let’s discuss the financials of how we were able to do this:
How We Saved (and are Saving) Money for our New Build
Because we’re building, we have more time to save than we would if we bought off the market. There’s no right or wrong way to do it, this is just how we’re doing it. We are in major save money mode right now, because the larger the deposit, the smaller the mortgage.
Our first goal is to put down at least 10%, then shoot for the full 20% to avoid paying private mortgage insurance (or PMI). We have approximately 7-9 months to save, so I can safely say we have a lot of spaghetti dinners in our future.
My husband & I both work in sales, and that’s been extremely helpful in achieving our financial goals. (If you’re looking for a job, and wanting to save up quickly- sales is a great way to do it.) For us, we live off our base salaries, and anything extra we make in commission has gone to debt or savings.
This plan seems to work really well for us personally. Although, there are many ways to save up for a house. So while sales is not a requirement, I can tell you that discipline is.
The Importance of Paying Off Debt – Regardless Whether You’re Buying Old or Building New
If you are wondering why we haven’t been saving this past year, I’ll tell you why: we have been hyper-focused on paying off debt.
We also paid for quite a bit of our huge wedding that unfortunately didn’t happen as planned. (Thanks COVID. You can read all the details here). And while yes, we still lost out on thousands of dollars already spent, we were able to show ourselves how much we really could raise in a year.
We realized that if we had less debt, we’d have more available income. More income means more house we could afford. Less debt also meant higher credit score. Higher credit score meant lower interest rate for a mortgage. Plus, we just didn’t want to be in a lot debt and add a house to the picture. In other words…
Therefore, we knew if we wanted to buy a house in the near future, we had to get rid of as much debt as possible. This had to be our first step. We literally moved from a house we were renting to an apartment to prove we were serious about this. Thankfully, it’s really paid off. When we applied for a loan, we were able to afford MUCH more than we would have otherwise.
We also got a killer interest rate of 2.75%. Though we bought at a great time in terms of interest rates, we couldn’t have gotten it this low if we had not made the financial strides that we have.
Therefore, before you even start to compare the differences between buying versus building a home in Texas, I highly recommend paying off debt first – even before starting to save. Building versus buying isn’t really even going to be relevant yet unless you are okay with getting a house that costs significantly less than what you really deserve based on your income.
I promise – Those high interest credit cards aren’t doing you any good… they’re just stealing your money, really. Your hard earned money that you could be saving towards your house.
The Texas Real Estate Housing Market
I want to point out that we are in Texas, and the real estate market here seems to be a bit different in other places. We’re not in California paying $1M for a shack, but we’re definitely also not in Wisconsin paying $80k for a 4 bedroom house.
While Texas has traditionally been on the affordable side of the market, I can tell you in recent years that the housing market has drastically increased. If you were to buy a house in Frisco, Texas five years ago, the average home price was somewhere between $302k to $305k. Today, the average price of a home in Frisco is about $425k.
If you ask me, I think that is a GREAT return on a 5-year investment. If you’re wondering why the value has gone up so much, it’s because of everyone moving to Texas. With so many businesses moving their headquarters out of California and into Texas, our state can barely keep up with it’s economic growth. That’s why new highways are always being built, new homes are constantly popping up, and land value continues to increase.
With no state income tax and no corporate income tax, it’s no wonder business in Texas is booming. And quite frankly, it’s not just California residents making the move here, but many other states as well.
So while Texas may not have much scenery, it is definitely a land of opportunity. Regardless when comparing buying versus building a home in Texas, know there’s a good chance the value of ANY home will increase. Well.. as long as you stay at least a few years and take care of it as best you can.
How Taxes Affect Your Decision in Buying versus Building
Property Taxes In Both Building New and Buying Old
Property taxes: this is the part Texans aren’t a huge fan of. Sure, you can buy a home further out in a developing area that is more affordable. However, in a few years, you should probably expect a tax increase.
Unfortunately, Texas is one known to a have higher than average property tax rate. With an average rate at about 1.87% per year, this still is a much better than having to pay a state income tax.
PID & MUD Taxes
You also have to think about your taxes that go towards your districts’s utilities. For us personally, we are having to pay a PID tax. Similar to a MUD tax, a PID tax is for the development of the city while MUD is just for your district’s utilities.
Since Celina is just now developing, the city has work to do with paving roads, putting in streetlights, etc. Because there’s more work involved, our PID tax is a lot higher than a typical MUD tax would have been.
However, even with these taxes, we know the return on our investment is what will make these taxes worth it.
Why We Chose Celina, Texas to Build our New Home
We ended up deciding to build in Celina. If you’ve never heard of it, don’t worry – it’s still very small. Celina is a town or two north of Frisco, where the Dallas Cowboys Headquarters are.
It’s known to be a very nice town, full of good families, and low crime. Even with the town’s upcoming growth, it’s expected to stay a nice area. We definitely wanted a community we could grow with, so we’re happy to check those boxes off our list as well.
Right now, it’s still a small town.. but growing like crazy. The home appreciation rate over the past five years has been quite drastic. In October 2015, the average home value was $226k. Today, 5 years later, the average home value is $440k. That’s a 14.26% appreciation rate PER YEAR.
While we don’t expect our home value to increase THAT much over the next five years (though it’d be nice), we do expect it to still increase in our favor for resale value.
Future Developments of North Texas and it’s Affect on Home Value
While the area is going to grow regardless, there are some major future developments happening in North Texas. One is the extension of the Dallas North Tollway. Being in close proximity to this tollway is a huge living factor for those who will have to commute in towards Dallas.
Luckily, Celina is right on the tollway’s track of being built. Therefore, this too, will increase it’s value. Though the tollway has not yet extended to Celina yet, it will be well past the city within just a few years.
Oh, and I forgot to mention one more thing… PGA Golf’s National Headquarters will be coming to North Frisco (about a 15 minute drive from our new lot). On 660 acres will sit a mixed use development including PGA headquarters, a brand new 500+ room Omni hotel, and a 100,000 square foot putting course.. PLUS an extra 2,000 acres set aside for further development. I’ve also seen plans for a massive convention center.
Investors are saying it will be a city within a city. It will undoubtedly be a magnet attraction to any and all golf lovers. While we expect the Frisco real estate market to really feel the positive financial aspect of this, we’re confident Celina will too. If you’d like to see more details about this development, click here.
Buying Old Versus Building a New Home in Texas
There are so many pros and cons when looking at buying versus building a home in Texas. While building a new home gets you a house you can customize, buying old gets you a well established neighborhood. While buying old gets you much closer to downtown, buying new further out gets you more square footage.
Therefore, it really comes down to personal preference. Would you rather live in an older (maybe a bit smaller) home in a well established neighborhood? Or would you rather live a further out in a newer bigger home? I can assure you that the closer you are to a big city, the more expensive the land value is.
For us, personally, when looking at buying versus building a new home in Texas..the financial aspect played the biggest role in our decision to build new. We knew we’d have a higher return on our investment in 5 years if we went with a new house.
If we both didn’t work from home, this definitely would have affected our decision. While there are a lot of available jobs in North Dallas, it’s not always a reasonable commute across town in morning traffic. (Your commute is definitely something to carefully look into.)
We also knew with a new build, we would have cheaper utility bills. With the latest and greatest insulation and a tank-less water heater, we’ll be saving at least three digits every month. (Cha-Ching! Yes please!) And let me tell ya…my husband is very excited about this tank-less water heater thing!
Plus, with building instead of buying, we could save up our down deposit over time knowing exactly how our future will look a year from now. Again, this is just what works for us.
So here comes the burning question.. The one everyone always wants to know:
Is it Cheaper to Build New than it is Buy a Home?
Unfortunately, this just isn’t a simple question. As someone with a Texas Real Estate License and a background in construction, I can assure you there is no one right answer. There are a host of different factors you have to consider in order to come to the right solution for you.
What you really have to think about is this: Would you rather buy a 20 year old home that is closer to the city or build a house 30-40 minutes out that’s a little bit bigger and brand new?
If you’re looking just at the actual home cost and price per square foot, it’s probably cheaper to build. When you factor in location and taxes, this is drastically going to sway your numbers. Let’s look a little further into this:
Location, Location, Location
Buying Versus Building New Downtown
Lets compare two homes next door to each other in the heart of Dallas – one brand new build and one older. The new one is likely to cost you a little bit more. Why? You’re getting a rare plot of land AND a new home AND a great location.
However, with that new build price, you have to remember that you’re getting brand new everything. New customized floors, a new roof, new HVAC unit, etc. Like I mentioned above, the newer house is also going to have much lower utility costs.
The biggest factor in this case, however, is that buying even a tiny chunk of land in Dallas today is going to cost you a lot more than it did 20 years ago.
Buying Versus Building New in a Developing Area
Now let’s think about living 45 minutes out of Dallas- where home builders are often building. When looking at buying versus building in Texas in this case… I’d say building new is probably going to be the cheaper option.
Why, you ask? For one, builders can provide incentives to make their prices cheaper than the already built homes in your neighborhood. Think about it – their competition are those already built homes for sale.
In other words, there’s a good chance you could lose money when selling a home that still has new homes going up. The only advantage a seller would have in that situation is a buyer could buy and close much more quickly.
Construction Materials Cost and Misconceptions about Building a New Home
I think it’s also important to note that there is a bit of a misconception about building a new home. 10-20 years ago, building a house was actually more expensive than it is to build a house today.
There are a lot of builders out there, and they have to be price-conscious to be competitive. Not only do they have competition among other builders, but also with homes that have already been built. Therefore, builders are constantly looking for ways to lower their costs while still providing quality.
This, in return, has led to construction businesses using more cost-effective building materials. In addition to lower costs, the building materials used today are also much more efficient than what was installed 20 years ago.
So while people’s first impression about building is that it’s more expensive, I can tell you that impression really isn’t as accurate as you’d think.
So going back to the question of whether it’s cheaper to build instead of buy, I truthfully just don’t think it’s a valid question to consider. I don’t think the financial concern of buying versus building a home in Texas matter because other factors play an even bigger part than do construction costs.
It comes down to personal preference, where you want to live on the map, and what your needs are. Building new seems to have a bit higher return on your investment, but again, it’s really about your priorities. It may be more important that you’re closer to work or your kids go to a specific school.
Regardless of which route you’re wanting to take, contacting a local realtor is your best bet. They can help you find whatever you’re needing – whether that’s the best builder in town, or finding a home for your family by next month.
If you’re moving to the area and in need of a good Realtor, send me an email. I’ll be happy to refer you to one of the best!
If you’re interested in keeping up with our home building process, make sure you subscribe below to get updates!