The prospect of new construction can be very appealing for real estate investors in today’s low inventory environment. The market is short of several million homes, but this presents a unique opportunity for investors to deliver much needed homes to underserved areas while also making a tidy profit. New construction isn’t as simple as investing in a previously built home, however, and it will require you to learn a few things if you haven’t dealt with it before. Apart from market research, how you build the home and how you market it once it’s built can make or break an investment. In this piece, we’ll cover some crucial tips to know if you’re planning a new construction project, and by following these tips you’ll be more likely to find success with your investment.
Every successful real estate project starts with an appropriate amount of market research. For new construction, this step is even more in-depth, as you will be scouting locations along with the overall market you’re investing in. You can identify markets with good potential by taking a look at key data points, such as home pricing. Growing population numbers and rising home prices can be signs of higher demand for housing in a particular area. An area with a rapidly expanding job market is also sure to experience population growth and the need for more homes.
The neighborhood you choose to build in will also play an important role in your final return. Most buyers will want to live in a quiet area with access to amenities like shops or restaurants, or at least good transportation options. Generally speaking, you will be looking for a lot in a new housing development. This can be good for your investment, because as more homes are completed and the neighborhood gets developed, you can benefit from growing property values.
The partner you choose to work with to build the home is one of the most important decisions you will make. When selecting a developer, be sure to ask for examples of past work and take a good look at customer reviews to get an understanding of how they normally operate. A trusted builder will have a proven track record of delivering quality work. Besides this, you will want to ensure all appropriate licenses and permits are in place for the work.
Throughout the construction process, you will need to stay in regular contact with your developer so you can work through delays, and keep a closer eye on progress. Communication is going to be key, and you should make sure to establish this with your developer as soon as construction begins to help ensure things stay on track.
Having financing in place early will help take a load off your mind and let your project go much smoother. For new construction investments you have a few options to choose from. Construction loans from traditional lenders like banks or credits unions come with attractive interest rates, but they can also be very hard to qualify for and are limited in their use cases. Alternatively, you can seek out a private loan from a lender that operates in the real estate space. These generally come in two categories, construction-only and construction-to-permanent. Construction-to-permanent loans can be converted into long-term financing without having to go through an additional loan closing process, making them ideal for rental property investments.
Before you start applying for loans, you should have a good plan for the project as well as a detailed budget so you can know how much you’ll need to borrow. When you already have these items ready, it shows lenders that you are organized and eager to move forward with the project, increasing your chances of loan approval. Plus, having an accurate budget will help keep you from overspending, ensuring that you remain profitable. However, sometimes problems do appear, and it can be beneficial to create a contingency fund in case you do run over budget.
In today’s competitive real estate market, buyer preferences will shape what kind of features to include in your home if your goal is to increase its final sale value. Some of the most desirable features are those that prioritize sustainability and energy-efficiency. Many of these features can be implemented at a fairly low cost, but they add real value to the property while also lowering monthly utilities. A few great examples include energy efficient lighting and appliances along with low-flow toilets and sinks to lower water usage. You may also want to look into sustainably sourced building materials, and using high-efficiency insulation during construction to reduce energy needs. These features can play a big part in increasing demand for your property, as even those that are less eco-conscious will still be interested in the additional cost savings.
If you have any experience with real estate investing, then you’ll know that things may not always go as you planned. It’s crucial that you stay on top of things by keeping in regular contact with your investment partners, but it will also help to have some contingencies in place. We already mentioned how an emergency fund can be useful in case you go over budget, but what if the real estate market changes during construction? If you had originally planned to sell the property once it’s built, but you suddenly find yourself in a different market environment, it may be wise to switch to a rental strategy for a time. However, this is also why it’s so important to do your due diligence and understand home and rental pricing before diving into an investment.
The final step of the construction process involves marketing your property well so you can maximize your return on investment. It will help to have an idea of the kind of buyer you want to target with your marketing so you can focus your efforts. For example, if you know the property is in an area with lots of family-oriented buyers, you can highlight features like extra bedrooms or if the property has a big yard. You shouldn’t limit yourself to MLS listing sites either, post your property on other marketing channels like local real estate groups on social media to reach more potential buyers and renters.
We also want to mention the important role staging will play in the sale. Staging is a great technique for showcasing your property’s potential to browsing buyers. Homes that are staged tend to sell quicker and for a higher price than their non-staged counterparts. Consider furnishing key areas in the home with some basic styles that have broad appeal, leaving a good canvas for buyers to impart their own tastes. It’s also possible to use virtual staging techniques to achieve the same results at a fraction of the cost of actually buying furniture.
The easiest way to save on a new construction investment is to work with a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors & developers across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to acquire financing for a construction project, RCN Capital has competitive loan options available.