Higher medical costs, a major milestone with my apartment, and continuous investments in my blog, that is a good summary of September. All of this and more gave me a good but still not amazing September Savings Rate.
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3 Tips to make a good start
4 The 6 pros and cons of a turnkey home: my experience
Last Updated on August 20, 2020 by Mr. FightToFIRE
If you would have told me 2 years ago I was going to get a turnkey home, I’d have a good laugh and move on. In my mind, I had already worked out that I wanted my house to be build from scratch or at least heavily renovated to modern standards. Boy, was I wrong. I ended up getting one as my first property.
The first time I heard of turnkey constructions was way before I wanted or even thought of getting my own home. I believe I was around 16 years old. A project was underway in my neighborhood and I was curious how it would turn out so I looked he contractor online. I was honestly surprised this was a thing.
As I did more research I learned that even though it sounds stressless and straight forward, there was more to it than meets the eye. I quickly decided it wasn’t something I’d be interested in.
As I got older I realized I wasn’t the handiest person. I also moved away from seeing my first real estate purchase as something for myself and more as an investment. As a result, I got more interested in turnkey and actively looked at possibilities for a first home. I found out that there are a lot of advantages, but that you also need to pay attention to some key points.
What is a turnkey project?
Let us first get the basics out of the way. What exactly is a turnkey home or project? You outsource the entire construction process to one contractor that provides a ready-to-move-in house. This contractor takes the manufacturing and supply chain services, including design, fabrication, installation, aftermarket support, and technical service on his account. You don’t have to search for (sub-)contractors or compare offers. And you should not be responsible for the coordination of the construction either.
This doesn’t mean you can’t place emphasis on the things you want. Many contractors choose to work in partnership with different companies to provide different layouts, basic designs, and purchasing equipment or choosing to integrate existing equipment into a project based on the customer’s preference sometimes all the way till the furniture and cutlery in the home.
But the bulk of the work is done by an outside company having the expertise to provide design and manufacturing that will streamline the entire process and do so in a timely fashion.
Before you decide on a turnkey home, it is necessary to make the right choice when choosing the contractor.
Usually, word-of-mouth advertising is enough, but how can you be sure that you are not mistaken?
Tips to make a good start
When I went on my apartment hunting I had a couple of things in my mind on how to handle this. Below are my pointers on what to do when looking into turnkey properties.
Listening (both ways)
If you meet a sales advisor, it is important that this person listens attentively to your wishes and needs in order to respond as much as possible. They should provide great attention to the customer and customer satisfaction is paramount. Every request is therefore handled with the greatest care. On the flip side, you should pay attention to what the other party is saying. Don’t forget that they are there to sell a home and might sometimes make things look nicer than they are in reality, pay attention to what they say and maybe even more importantly, what they aren’t saying.
“Let the cobbler stick to his last” is the sentence to remember when it comes to turnkey properties. I see it in my close circle enough. Many inexperienced people took up the profession of builder, developer, electrician, and plumber to eventually get lost in all the technical skills required.
There are of course ways to improve yourself and you learn as you go, however, “know thyself”. If you know that you have two left hands, don’t try to bite off more than you can chew. There is no shame in knowing that construction and DIY is nothing for you. Turnkey companies are 100% familiar with construction, the various market evolutions, the latest trends in insulation, special techniques, ventilation, underfloor heating, …
The same goes for the site supervisors and project managers who are on-site every day to ensure that the site is properly monitored and the planning runs smoothly. Especially as rules and regulations become more strict, it becomes ever more difficult to do everything properly.
You are more than welcome and even advised to play and active role as the owner in the follow up of the construction. Dare to ask questions to the contractor when you see something in the specification of the property that you don’t understand.
Your budget is a crucial point, but it shouldn’t be the only argument in your decision making. Price is not everything. Some construction companies offer an attractive starting price, but don’t include extras such as an equipped bathroom and kitchen. This will inflate the total price of the property.
I strongly recommend you to compare offers and make sure you receive complete and detailed specifications. Don’t hesitate to ask the sales advisor, he or she will make sure that your initial budget is respected. By taking all these precautions, you will avoid unpleasant surprises such as extra costs. A construction project is complex and requires an in-depth investigation.
That is why it is absolutely necessary to be sure of the company that will carry out your life project. Never neglect this point! The company must be financially healthy because that is the only way to have peace of mind. As a candidate-builder you are looking for a reliable company that is not in danger of disappearing before the expiry of the ten-year guarantee or even worse, right in the middle of construction.
A prime example is a project that started 20 years ago in my neighborhood. Things started out great, but they didn’t even reach the halfway point of the project when the company went bankrupt. The project came to a standstill and a legal battle ensued. This took 10 years to settle. As a result, dozens of owners lost tens of thousands of euros and never saw their apartment delivered. Only in the last two years did a new construction company take over the land and construction to try and finish it. It’s still not ready to this day.
The reputation of the company
It is difficult to know a company’s reputation if you are not “in the construction business” yourself.
Be sure to do your due diligence (just like you would when selecting your broker). try to look for reviews of the company itself, look at already delivered properties, see if existing owners aren’t complaining on forums about all kinds of hidden defects. They are serious indicators of trust from the customers they have served.
The 6 pros and cons of a turnkey home: my experience
I went with a company that specializes in investment property and on top of that provided rental services. By including everything, I won’t have to worry about the administration like finding tenants, collecting rent, and managing upkeep.
These services aren’t free (about 10% – 12% of the monthly rent) but are worth it for me since I prefer to be a hands-off landlord, especially if I move to a different country. A turnkey property has more advantages that pushed in favor of going this route. Of course, there are also downsides. Here are 6 pros and cons of a turnkey property.
Character of the house
A big misconception about turnkey construction is that all houses look alike. while a contractor might have a certain default style and a standard plan for model homes, these merely serve as a source of inspiration for the architect and the construction company.
Benefit: They build and finish the house according to the wishes of the client and in function of the building ground and building regulations. With a certain budget, you can choose from countless kitchens and bathrooms, which makes every turnkey house look different in the end.
Downside: However, it is important to know that not all turnkey firms allow you to choose your own architect, and you can sometimes be limited in terms of materials. This was the case for my apartment. Since it’s an apartment building, I couldn’t choose the looks. What I will be able to choose is the interior fit and finish. But this wasn’t important to me. My focus was on the location and the rentability of the property. While this is theory for the moment, given the location a solid rent of over 1K should be achievable when taking the parking spot into account.
Pricing and budget
The cost estimation of a turnkey company is very strict and relatively clear. For a turnkey house with a surface area of 160 m², 3 bedrooms and an E level of E50 you can assume approximately 155,000 to 175,000 EUR. That is excluding taxes, land, and architect. Based on the choices you make in terms of finish, the price can rise quite a bit.
Advantage: All factors are taken into account and you enjoy economies of scale. Often, turnkey companies offer finished projects in larger lots so that you can save some money on the land. This advantage of scale also applies to the purchase of materials.
Disadvantage: On the one hand you choose to build stress-free with a turnkey company, but on the other hand you will not gain on budget. So in most cases you pay a little more than you would coordinate everything yourself. And most changes that deviate from the default plan not agreed upon upfront will cost you more. Think air-conditioning, extra outlets, specific cabling, etc.
The so-called Breyne law[NL] -the housing construction law- offers protection to the buyer of a turnkey house. This is a big plus if you know how bad things can go. However, it’s important you pay attention to the specifics of the law as any deviation from it can mean that you aren’t protected by it.
Advantage: The Breyne law provides a number of major advantages. Your deposit will be a maximum of 5% of the total price, your total price will be determined in advance, and there is a mandatory delivery in a provisional phase and a year later in a final phase. Finally, the law provides a completion guarantee which ensures that in the event of failure, the house will still be fully finished.
The guarantees offered by the law include:
- Max 5% Advance payment on conclusion of the contract may not exceed 5% of the total amount of the contract.
- Balance must be paid in installments. They may not exceed the value of the work carried out.
- The total price is fixed in advance (with the possibility of revision, but under certain conditions).
- An obligation to deliver the dwelling in two stages: provisional acceptance and final acceptance (at least one year after provisional acceptance).
- A mandatory financial guarantee protecting the future owner if the company fails to meet its obligations (e.g. bankruptcy).
- Clearly defined liabilities: the company (contractor or vendor) is liable for ten years for any serious defect – visible or hidden – affecting the stability or solidity of the property.
Disadvantage: There are companies that try to control the rules of the Breyne law. For example, you may be asked to pay more in advance than the submitted five percent. It is therefore necessary to be extra vigilant. The law only applies when:
- The building is intended for residential use or for professional and residential use.
- A future owner makes one or more payments before the works are fully completed, according to the terms of the contract
And it doesn’t apply anymore when:
- A future owner has concluded separate contracts with various contractors (one for the carcass, another for the roofing, one for the heating, etc.).
- The future owner has had works carried out in a dwelling he already owned. These works do not take place as part of a transfer of ownership of the building.
- A contract is concluded with certain entities (e.g. a municipality).
- As a future owner, you hold a professional activity in building or has built dwellings for sale.
- The contract is a study contract relating to a construction work and if certain conditions are met.
Full finish or hull
When it comes to a turnkey solution, you still have a free choice when it comes to finishing. For example, you can opt for the so-called ‘hull’ or wind and watertight version.
Advantage: You can count on a complete finish, including the layout of the bathroom and kitchen, the construction of the driveway, the lawn and, if desired, even the fence. Months after the sale, the project will therefore no longer be a shipyard.
Disadvantage: If you opt for a fully finished house, you will also effectively spend all your budget in one go. A bit of finishing work can still reduce the price.
Coordination of the yard
A construction project involves a lot of work: looking for contractors, submitting building permits and drawing up a soil certificate.
Advantage: A turnkey company takes care of all the paperwork for you. A big advantage because you experience less stress. Of course, all documents will be in your own name, but you don’t have to worry about the paperwork.
Disadvantage: The personal contribution is less. You run the risk of not closely following up the work yourself and therefore paying too little attention to finishing, quality or timing. You may end up with a half-assed final project that still requires fixes and adjustments after everything is done, resulting in even more costs. Supervision by the architect also leaves much to be desired. Contractors often rely on the same (relatively cheap) architects. They depend on the construction company for their order book. That is why those architects do not always take up the role they should take, namely that of independent adviser to the client. Why would those architects point out that the works are not good enough if they depend on those construction companies for their order book?
Speed of the construction
Often turnkey companies work together with subcontractors who are able to move perfectly from site to site and thus ensure a quick follow-up.
Advantage: the construction time of a turnkey construction project is a lot shorter than when working with different contractors. The weather conditions of course play a major role, and depending on whether you opt for a fully finished and furnished house or just a windproof house, the completion can be some six to ten months later.
Disadvantage: a faster construction process also means that the invoices will follow at a fast pace.
The rise of turnkey construction in Belgium
It’s clear that a turnkey property has some great benefits but you will always have to be diligent. More and more younger people see the benefits of turnkey properties and don’t mind the downsides.
This is evident from figures from the federal public service Economy that the Flemish Construction Confederation provides. In 2015, 4,183 building permits were granted to construction firms in Flanders, compared to 8,278 to private individuals. This means that the construction companies account for 34 percent of all permits granted for new houses in Flanders. In 2006, the share of firms such as Matexi or Groep Huyzentruyt was limited to 19 percent.
Another more recent study, done by AXA Bank in 2019, shows that people under 35 are increasingly opting for a ready-to-use house and no longer feel like camping on a construction site for months. 40% prefer a new home of which 16% prefer turnkey (up from 14% in 2017). Several factors explain the trend. Double-income earners no longer have the time and desire to follow up on the construction process from A to Z. Building land is scarce, expensive, and to a large extent in the hands of project developers.
In the bigger cities such as Brussels, Antwerp and Ghent, more and more old city cancers or industrial sites are being transformed by professional developers into real residential parks, with both apartments and individual houses. Finally, turnkey homes meet the desire to keep the costs of a new building under control. The new generations in particular are prepared to live smaller and to lose space.