INVESTMENT STRATEGY: New Construction

Have you considered investing in a new construction home for your next rental property? Most investors are looking for dilapidated properties to fix and flip or fix and hold. While many of these properties may have a lower start up price, the rehab costs and holding costs can add up quickly. When already to rent, it is still a 10+ year old home with future maintenance costs increasing.

A new construction property typically will have a solid return on investment without any of the rehab costs and maintenance is typically covered by a home warranty. So this may be the perfect niche for your investment portfolio.

There are a variety of new construction options – from raw land to buying a new construction property within a community. While this maybe exactly the venue you want to invest in, there are still pros and cons in this type of investment depending upon your business goals.

Let’s talk first about a couple of MUSTS if you decide to get into new construction as an investment strategy.

 Work with a Buyer’s agent who is a new construction specialist!

1.     Agent.  First and foremost – you must know if rentals are allowed in the specific communities. What are the rules and regulations surrounding the rental if they do allow rentals? 

2.     Contract.  New Construction comes with a builder contract. Every builder will have their own unique contract. It is imperative that you read and understand these complex contracts.

3.     Financing.  Financing options and requirements through builder financing must be compared to an investors own financing thoroughly to understand options.

So, what’s the biggest benefits of new construction for your next investment?

1.      Maintenance. The biggest benefit is the warranty and costs saved on maintenance. While there are still maintenance/preventative maintenance costs associated with new construction, the first 5-10 years will be relatively stress-free regarding maintenance. This includes your appliance warranties. No more calls toilet not flushing, or shower is leaking.

2.     Location. The communities building new construction are highly sought after. Successful investment properties are in areas that demand a higher rental price because of good schools, public amenities, and close proximity to transportation.

3.     Supply. The numerous new construction communities in a 50-mile radius provides for many options, where fix/flip properties are harder to chase down and find. 

4.     Appreciation. When buying a new construction property in a new community the property will appreciate as the area fully develops. Knowing the market, the location and forecasts can provide for new areas to tap into to maximize appreciation potential.

There are still some downsides to this niche investment strategy that you must consider as well. 

1.     Pricing. Even with all the savings, new construction properties are going to be more expensive. Investors will pay market price. This strategy is for passive long-term income properties.  While it is tough to negotiate with new home builders, it is not impossible. Knowing when a builder typically increases the price of homes during the development of a community is paramount. There is an unknown as to the appreciation of a brand-new community as there are no true comps to compare to.

2.     Timing. What stage is the construction of the home in? How long before you can get a renter in the property? Will you have to hold the investment for 9 months before income is produced?

3.     Development. Renters maybe turned off from renting a property with constant construction around them. It is important to know the timing for the property development.

While the cons may sound daunting, when working with a new construction specialist who has developed relationships with builders can add some benefits from watching for homes that have incentives from not the most desirable lot location to a cancelled buyer contract that the builder may want to close quickly. Saving time, having a hassle-free investment and potentially higher rental profits may just be what you have been looking for in your investment strategy.

If you would like to explore this strategy for your next investment, reach out to our team of new home construction specialists to discuss your goals.

East Pasco Living Team

We are a collaborative team with a vision to put our years of experience working and living in East Pasco to work for you! We strive to build long-term relationships and give you the individualized attention you deserve. Let us put our combined decades of experience to work for you. 

Carla Goddard | East Pasco Living Team Lead

Graduate, REALTOR® Institute | Residential Specialist | BHHS-Certified New Home Specialist | Certified National Home Specialist – Residential Construction Certified (CNHS-RCC) | NHCB Certified New Homes Co-Broker |BHHS-Certified eCertified® Specialist | BHHS-Certified rCertifiedSM Referral and Relocation Specialist | Tampa Bay Builder Services Manager

Berkshire Hathaway Home Services

📧email: carla@eastpascoliving.com

📲text/call 813.716.4498