I get this question all the time, and it's a great question to ask… the problem is, there's no easy answer. There are just too many variables and too many unknowns. So how do you even set a budget, assuming you want to have a new home built on your land?
Let's go over the variables and think through the unknowns, which will help you come up with a ballpark budget.
There are three main elements to the cost to build a house on your land:
- The cost of building the house itself;
- The cost of the land;
- The cost to prepare the land for the house.
The first two are pretty straightforward, so we'll cover those first. The third item is the most complicated and contains the most unknowns, so we'll address it in a separate article.
You can get a pretty good idea of what the house itself will cost by doing some shopping. Look at new homes that are within your budget. Get a feel for the range of sizes and amenities that are available for the amount you can invest.
KEY POINT: Smaller homes with more amenities will have a much higher price per square foot than a larger house with the same or fewer amenities.
I can't emphasize this point enough. Sometimes we get fixated on price per square foot, because that's how builder and real estate agents market, as if every square foot is the same. Trust me, it isn't. My dad says, "throw the Hope diamond in the bathtub and tell me if that changes the price per square foot".
Let me give you 2 examples, both completed in 2016, one on each end of the spectrum:
- 1,200 square feet, for $125,000. $104 per square foot.
- 3,670 square feet, for $312,000. $85 per square foot.
Pretty big difference. When you build a small house, you don't have as many square feet to spread the cost over. You still have the cost of the kitchen and bathrooms, the expensive rooms, but you don't have as much "cheap" space, like living rooms and bedrooms. More here on cost per square foot to build.
It's tempting to think that building a custom home will get you the smaller square foot price no matter the size of house you build, but the rules of economy won't be suspended for you. Keep a realistic expectation of what you can afford. Read some articles on how to budget for your new home.
Remember to deduct the cost of the land from the price of the new homes you're looking at. You can usually find out what a builder paid for a specific lot by researching the county property records. Most counties have a website you can easily search online to find the cost of the land, which you can then deduct from the price of the home.
While shopping new homes will give you a general idea of cost, keep in mind that many builders don't build outside their own communities. Some say they do, but it's really secondary to their main business. Depending on the location of your new home, there might be an additional cost for contractors to travel outside their normal areas or to a remote location. That can add to the build cost.
The cost of the land is whatever you paid for it. If you haven't bought the land yet, it's the net cost you'll pay once you've negotiated the price and closed, including whatever taxes and fees are involved in the transaction. Buying land is a topic in itself that you can research more extensively online.
In our next article, we'll address the most complicated part of this equation: the cost to prepare the land for the house.
For a more in-depth look at the whole process of finding, evaluating, negotiating, and buying land where you can build your home, download our free guide, 5 Steps to Buying Land for your Forever Home.