Yahoo Finance Major warning as Aussies risk $510,000 life savings: 'Builder has no sympathy'
A knockdown rebuild nightmare forced a Sydney family into a merry-go-round of terrible rentals. This is what you should know before embarking on an ambitious project.
The idea of building your dream home appeals to many of us. However, the reality is that the knockdown rebuild route is by no means smooth sailing.
You're no longer a simple homebuyer, you're an entrepreneur. And it can quickly turn your life upside down.
Recently some family members embarked on a knockdown rebuild project in Sydney and found out exactly that.
They Sydney accountants did own a home. But they have three teenage daughters and wanted something bigger to accommodate their growing family.
They found a builder and settled on a design, but that’s where things started to take a turn for the worse.
Delays meant the family had to rent for over a year.
They got stuck in a merry-go-round of small units and terrible accommodations.
They ended up living with us for a period of time as they couldn’t find a rental.
RELATED
Dangerous housing trend costs Aussies tens of thousands as 'forced sells' loom
$1,337 ATO penalty hitting thousands more Aussies: ‘Extra money to the tax man’
Notably, the builder didn’t have that much sympathy for them, blamed everyone else and kept kicking the can down the road.
At the same time, they were stuck paying the mortgage on a property that they couldn’t use.
All while costs kept rising.
Unfortunately, this isn’t a one-off story. This is incredibly common these days for those looking to undertake a KDR.
So if this is the reality of building in 2024, what are you supposed to do to make sure things go better for you?
You need to think about it like an entrepreneur and not a starry-eyed homeowner.
Below are some tips from an entrepreneur who has researched the KDR opportunity.
What do I need to know before I knockdown rebuild?
Choose your home design wisely
Visit display centres and allow your imagination to run free. Look for the one you like, not the one the sales folks suggest. If required, modify it to suit your unique needs.
Avoid quirky ideas that only you value
Consider including popular features that leave you cold but would increase the desirability of the house to a potential buyer or a valuer.
Real estate professionals suggest that a home should be built with the next buyer in mind.
Should you dare to change the design, you are now the designer. Many love that challenge.
Change the floor plan and you are now the draftsperson who must check that the doors can still swing open.
Move a light switch, and check that it is not behind a sliding door.
The builder will build what you ask for.
Of course, for a fee, they may or may not repair “your error” upon completion, like the “break it and you own it” rule in an antique store.
In the building game, it's a matter of “touch it and because you own it, you pay for it”.
Be sure to examine the variation clauses in the small print of the 99-page knockdown rebuild contract.
Assess your block of land
No doubt your old block was great for the old home.
The average knockdown rebuild home is twenty-plus years old.
Council rules will have changed in that time.
You may find that your block has been zoned for a much smaller house than is currently there.
Your old block may not be able to accommodate your new McMansion.
You might even find that the zoning has changed to allow more dwellings, which means you need to ensure you are maximising the use of the land for your benefit.
Remember this is business and business is ruthless
When buying a house, you are a consumer who can see and touch the product.
When you choose knockdown rebuild, you are an owner and an investor.
In many ways, you are an employer who is offering a project to build a house worth between $350,000 and $750,000, with the average being $510,000. Putting it bluntly, your life savings.
You are now an entrepreneur about to make perhaps the biggest decision in your life.
Let’s be frank, business is ruthless, and the builder is in business to make a profit.
Proceed with eyes wide open.
The sales folks, always charming, are not the ones building the house. So find out who is.
Know your builder
Know who the builder is and where they are building. Be sure to do a reference check on your new employee. In NSW, check the builder's licence.
Type in the builder’s licence number and then type in the insurance section, to find the builder's current sites. Then go for a drive.
A little less exciting than considering visual space, colour tones, and maybe Feng Shui.
Check out several building sites
A sales office can differ greatly from the reality of working with a builder.
This is why it helps to check out a site when it's a slab, roof and walls.
A lot of trash will tell you a lot about your prospective builder.
An expert tip is to sidle up to a tradie and ask how long they have been working for the builder.
Be bold and say that you are thinking of signing up for a knockdown rebuild. Sometimes the response is good, and sometimes it is a tale of woe that sadly you don’t wish to share.
Tradies that haven’t been paid are often a good sign that the builder might be in trouble and should be a huge red flag.
Tell the neighbours
The sites you saw on your field trip will now be in your neighbourhood. Your great friends next door may not appreciate the “hoons are us” look that many knockdown rebuild sites display.
Remember, if it looks like a duck, walks like a duck, or quacks like a duck, it is a duck.
On the upside, they will all believe tthe neighbourhood will have improved value due to you doing the knockdown rebuild. You could be the neighbourhood hero if all goes well.
How long is a piece of string?
Look up all the KDR websites; the average build time is 12 to 15 months.
If the build time is too good to be true, it will be, and you will be paying the mortgage and rent all that time.
Risk Awareness
If things go wrong with the biggest investment of your life, the consequences can be irreversible.
There are families without their homes because builders went feral.
The owners are usually professional-level individuals who have worked hard, saved their money, and are now homeless whilst owning a million-dollar block of land.
What would happen if your builder went feral and you were forced to rent for one extra year, or two?
Family stress, relationship breakdown, divorce, bankruptcy, and financial ruin are real examples of people trusting their builder.
Industry gossip suggests that there are approximately 130 builders named as Traders of Concern, a NSW Fair Trading expression, out of approximately 4,000 licensed builders.
It is fair to assume that that number is the bare minimum. It wouldn’t hurt to ask your builder if they are one and get the answer in writing. The 3 per cent are no doubt outliers, but you don’t want to employ one.
Plan your Cash Flow
The driver of business is cash flow. As an entrepreneur, you are responsible for your cash flow. And so is the builder.
Let's check the cash flow from the owner's point of view.
The average build cost is roughly $500,000 which equals approximately $3000 per month on a loan.
Plus rent of say $1000 per week. By week 12 of the build, you will be paying 60 per cent of the mortgage payment plus rent.
That's $2,000 plus $1000 PER WEEK = $4000 PER MONTH.
In total that equals $6000 per month for as long as it takes.
Some KDRs in Sydney have gone on for two years.
Communication
To protect the guilty, I have called our composite builder “Baloney Family, knockdown rebuild builders with charm”.
When dealing with your typical builder, there could be any number of reasons for a delay.
“Phone overheated”, “the wife is expecting”, “my fellow staff members” wife is expecting”, “the tradie couldn’t find the location.”
You might even hear them say “Don’t judge us by your house, we are just the conduit between the owner and the tradie”. (The builder licence apparently makes them coordinators, not managers).
You are also loathed to mention their own $10 million home or the fact that they are giving the poor tradie a ‘fifth chance’ despite the horrible experience.
When told of being a ‘Trade of Concern’ by Fair Trading, the response; “so are lots of builders we know”.
Final warning
Being brave enough to entertain a KDR is potentially a very rewarding experience.
However, you will not be protected under consumer law.
There is more warranty on a $50 toaster than on a one-million-dollar KDR.
The contract is written by the builder with all sorts of innocent-sounding additional clauses, to protect... the builder.
You may be wise to get a lawyer who is familiar with the building industry.
A good builder won't mind. That may well be the builder that you are looking for.
