7 Key Strategies for a Profitable New Construction Investment

There are lot of ways to make money through real estate, but investors tend to overlook the prospect of new construction developments. It makes sense, as these projects can be extensive and often require a significant cash investment up front. However, with the current housing shortage affecting the availability of homes across the nation, the door has been opened for some lucrative investment opportunities. A new construction project in an underserved market may be very profitable, and you can incorporate some key strategies to maximize your return on investment. Continue reading as we discuss these key strategies and why you should consider new construction for your next real estate project.

Construction drawings with helmet, calculator, money, and model of house

Understanding the Landscape of New Construction Investing

In today’s real estate market there is simply not enough inventory for the number of interested buyers. When investors think of a new construction project, they often think of a high-cost home built with brand new materials and features that put the final sale price out of reach for most buyers. While there is certainly a market for higher-cost homes, there is also a gap in the availability of affordable real estate properties. For example, a strategic investment in a multifamily property provides homes for multiple residents and can also be very profitable for the owner. Having the patience to identify these lucrative opportunities is very important, and that brings us to our first key strategy.

#1: Conduct Thorough Market Research

Market research involves collecting valuable information on the area you are looking to invest in which can give you a leg up on the competition and help you make better decisions. Before investing in any particular market, you will want to take a look at a few vital statistics to get an idea of the level of demand in the area. Population growth, job growth, and the direction home prices are trending are some great examples. Any place experiencing an influx of new businesses or infrastructure can also be a dead giveaway for an up-and-coming area that’s worth investing in.

#2: Choose the Right Location

Once you have selected an appropriate market, you will need to take it one step further and do some research on locations. The neighborhood a property is located in will have a massive impact on its final value, so it can be beneficial to take the time to select a good lot. The ideal property will be located in an area with proximity to amenities like shopping or entertainment, good schools, and easy access to transportation. And again, if an area has future plans for developments these can eventually boost the sale price of surrounding properties due to increased demand.

#3: Understand Your Financing Options

You will want to get financing in order before you make any purchase decisions, as this will give you a better idea of your upper limit in terms of budget. You have a few options for financing a new construction project, from traditional to private sources. A traditional lender like a bank is always an option, but know that these loans often come with lots of hoops to jump through in terms of your personal credibility and the property’s requirements. Private loans come with lesser requirements, which means they can be approved much quicker as well, but know that they may also come with slightly higher interest rates.

#4: Build A Strong Relationship with Your Developer

The developer you choose to work with will have just as much of an impact on the project’s final result as any other major decision you make. Selecting the right one helps ensure that work goes smoothly, so be sure you have vetted them through a trusted referral source or by taking a look at past examples of their work. Building a healthy working relationship will also be good for keeping things on schedule. Once the project starts you will want to work closely with your developer so you can have an idea of progress and deal with any delays as they come up.

#5: Manage Construction Risks Effectively

Effectively managing risk is what separates a successful new construction investment from a failed one. There are a few common risks associated with new construction that you should be aware of so you can know how to deal with them. The most common of these is timeline delays, which can be alleviated through careful project planning and working closely with your developer. Another common issue is struggling to implement your exit strategy, so it may be beneficial to have a contingency plan to avoid paying more in holding costs. It’s important to note that many of these risks can be avoided by dedicating an appropriate amount of due diligence to the project, which allows you to identify these issues before you make any purchase decisions.

#6: Embrace Sustainable and Modern Features

You may be able to incorporate modern, desirable features into your project to help boost its resale value. These features can become a highlight of your listing, increasing demand for the property at little cost to you. Consider adding smart devices, such as doorbell cameras, thermostats, and voice-activated assistants. Many of these devices can also sync with security systems as an added selling point. A great way to improve the sustainability of your property is by using energy-efficient lighting and appliances, and using sustainable building materials in the construction process.

#7: Leverage Technology for Project Management

Utilizing project management technology can help you streamline many of the processes while also giving you a good overview of progress. There are tools that allow you to keep track of the progress, as well as tools to help you research markets and gather analytics. They may also allow you to improve efficiency, reduce costs, or brainstorm ideas for the project.

RCN Capital

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.