Sunday, February 13, 2011

The money value of time

There's been a few ads for knock down & rebuild in our local paper - here's a couple that we saved because (of course) it features a Nolan!

Can you spot the difference - December 2010 on the left, and February 2011 on the right?

Anyway, the basic difference comes down to the money value of time, or as most people know it - "time is money", and this is a great example of that in real life.

Would you rather have $100 today, or $100 in 10 years? Here's a hint - take it today. Inflation alone means $100 in 10 years won't buy you as much as $100 today, ignoring any other benefit from investing or growing the original $100 over 10 years.

Same thing applies to building a house. As time goes by, labour and material costs increase, let alone other associated costs to operating a business. One largely overlooked factor in leaving your initial $1000 deposit is that although it locks in the base price for your house, it only does so providing you start building within 150 days (or however many specified days according to your builder).

To be fair, it would be unreasonable to expect your $1000 deposit to hold the price of your house for 6, 12, 18, 24 months into the future, for all the reasons mentioned beforehand. How would you like it if your boss decided to commit to paying you your exact salary for the next 5 years?

If you're building, make sure the builder isn't dragging their heels in organising appointments for precontract, contract, colour appointments, tile appointments etc. Similarly, make sure you're as organised as possible - do your homework in picking colours and selections, know exactly how and where to make modifications and upgrades if you want, demolish any old house asap if you're rebuilding, know your block of land inside out and get to know people at council if you have to regarding building permits.

A special warning for those building in new estates, land developers are notoriously optimistic in having your land titled - delays of 6-12 months and beyond in titling is not uncommon, and you're the one who will have to foot the bill for delaying the builder - you can bet the developers have a good legal team writing their contracts to make sure they're not responsible for delay costs!

Anyway, getting back to that picture of the ads, in 2 months the price has changed $11,000. This doesn't mean that every 2 months the base price will keep increasing by that amount, typically prices hold for 4-6 months before increasing again. Factor in price increases when building - base prices change, upgrade prices change, upgrade categories change and so on.

More food for thought - let's say that extra $11,000 is paid back over 25 years at 6.45%. The extra interest alone on $11,000 is about $11,165 - so now instead of paying $11,000 more, it's cost you $22,165 more.

Unlike flat screen TVs and computers, building a house doesn't get cheaper year on year, exactly the opposite!

Hmm... I should really start writing a book about building new houses - any readers out there work for a publishing firm?


1 comment:

  1. I reckon you could develop an iPhone/iPad ebook and publish that as an app without costing too much.



Related Posts with Thumbnails