A new home construction can be an excellent investment-especially for commercial and residential property owners who are looking to avoid the ongoing repairs and maintenance that inherently come with older homes. Real estate investors are looking for properties that will return a decent amount of their investment (ROI).
The Cap Rate (or Capitalization Rate) is a simple way to see if an investment will make money. The Cap Rate (or rental income minus expenses) will show you how much money is coming in and going out.
High rental demand and new construction property can yield excellent returns. Continue reading to find out about the advantages and disadvantages of investing in a new home whether this strategy suits you.
WHAT IS NEW HOME CONSTRUCTION?
A new construction property is a home that you buy directly from a developer or builder.
There are many advantages and disadvantages to buying new construction homes in Myrtle Beach SC. Before making any investment decisions, it is important to do extensive research. It is a smart idea to look at the past properties of the developer and see how they have held or appreciated over time.
Advantages of Purchasing New Construction Homes
#1 – Location!
Anyone who is familiar with real estate will know that location is everything. New builds are no exception. Homes built in new areas are often found in upcoming or emerging markets. These developments are often built in or near “A”-neighborhoods. A nicer neighborhood has better schools, lower crime rates and is closer to amenities.
New construction developments are often found in desirable neighborhoods, or soon to be good neighborhoods. This makes it easier for landlords to find high-quality tenants.
#2 – People like living in new homes
Humans have an amazing ability to adapt to their environment. A creaky ceiling fan may drive you insane at first but you soon forget about it.
We are able to adapt to our environment and can easily get bored. We all like shiny, new things. Why is it that so many people lease their cars? For many, the thrill of driving down the street in a new car every two to three years is worth the expense. After the “new car feeling” fades, they can begin looking for their next car to lease.
New construction homes are cleaner and have more natural light. It is also comforting to know that you are the only person who can live in this space and make it your own. More than half of Americans prefer new homes to existing ones.
The great thing about investing in new construction properties is the fact that people will always be inspired by novelty.
#3 – Appreciation and Instant Equity
Investors looking to grow are best served by buying new construction homes. You can increase the appreciation rate of your property and build equity quicker by investing in emerging markets. It is not possible to predict how much your property will appreciate so ensure you do a market analysis. If you are confident that the market is expanding and there is high demand for rental properties, you can be sure that your property will appreciate.
My friend purchased a property for investment in new construction recently. The value of her property has increased by $60k in just three months! Imagine buying in a rapidly-growing market that is incredibly hot for rental housing.
#4 – Extended Warranty & New Appliances
New construction rental properties also come with new appliances and extended warranties for all major systems. An extended warranty should cover major structural components as well as electrical, plumbing, heating, and heating. Warranty lengths can vary. The factory warranty should cover anything that breaks or goes wrong.
Investors won’t need to worry about unexpected expenses when buying new homes, at least not for many years.
#5 – No or Low Maintenance & Repairs
Properties that require little to no maintenance are attractive options for the less experienced landlord. Investors in new construction real estate can avoid the many maintenance and repair problems that are often associated with older properties.
New construction investors wouldn’t be aware of any significant repairs such as a leaky roof, or plumbing problems.
#6 – The ability to customize in order to reduce costs
The new homes will appeal to the current trends. Investors won’t have to spend money or time on any renovations. Pre-construction homes, which are homes that have not yet been built, allow you to personalize the property. You can save money by choosing durable, basic amenities over more expensive or luxurious options.
If a major renovation is not planned, you will get what you see in an existing home. Older homes will naturally have unique features and aesthetics depending on the style at the time. Even updating a few outdated aesthetics can be costly.
Most homebuyers and renters want large rooms, open floor plans, and vaulted ceilings. With the COVID-19 pandemic, we are seeing a housing trend that outdoor space is becoming a “must have”.
#7 – Paying smaller deposits upfront
Homes under construction can often be reserved for very low prices. You can also reserve pre-construction homes before they are built.
Let’s take, for example, a developer asking for a $1,500 earnest money deposit to reserve a $225,000 townhome. The buyer doesn’t need to pay anything extra until the property closes. This will keep money in your pockets for longer, and if the market conditions change and you have to cancel the deal, it won’t be as costly financially.
#8 – Plan ahead or buy new construction now
You have more control over the buying process and timeline when you invest in pre-construction and new real estate. A custom home builder should be able provide an exact closing date when you purchase a newly constructed property. This is also true for investment properties that are in preconstruction.
Investors who are looking to purchase immediately or plan for future investments will find this very advantageous. This will allow you to avoid bidding wars for homes that are already on the market, particularly if there is a buyer in the area.
#9 – Get in touch with the Custom Home Builder’s Team for a faster buying process
Custom home builders and developers have a preferred team of experts who will help them during the selling process. Consider using the title and mortgage companies of your builder, as well as appraisers. Because of their long-standing relationships, you may be able to get a discount if you work with them. Your builder’s team can make it easier to buy your home.
#10 – Smart & Healthy Technology
New construction homes are far more efficient and technologically advanced than resale properties. New homes are built with more durable and longer-lasting materials than ever before.
Technology has made windows, insulation, heating, and air conditioning more efficient. These technological advances have created a healthier environment and made energy-efficient homes a standard industry practice. Your tenants will see a decrease in their monthly utility bills because of the energy efficiency of new buildings.