If you are a real estate investor, new construction can be a great way to build long-term wealth for your portfolio. With housing demand at all-time highs, a new home built in the right place can be a very profitable investment. Newer homes tend to fetch a high price on the open market, as their modern amenities and features make them desirable to homebuyers. There are also many other benefits new construction properties have over existing homes which help them sell quickly. In this piece, we’ve put together a guide on how investors can build wealth through new construction projects.
Understanding the New Construction Process
The key to making a good return with new construction is careful and deliberate planning. The more time you spend making preparations, the more likely your investment is to succeed, and that you will make more money. It begins with taking the time to research emerging markets in order to identify those trending in the right direction. Growing markets have more demand for housing, and can lead to better returns. Location is everything in real estate, so where you choose to build can really make or break your investment.
After you’ve selected a good location, you will need to start preparing for the construction itself. Select a good builder, ideally one that you have vetted, as you’ll be working closely with them throughout the process. You will know they’re a good builder if they’re able to help you with certain elements of the home, such as incorporating design trends to make it more appealing to buyers. This stage is also where you will calculate your investment’s costs, returns, and any potential risks that can change the timeline of the project.
Mitigating Risk in New Construction Investing
There are some risks you should take into account when planning a new construction project, and you should also know how to avoid them, or mitigate their effects. One of the most common snags you can run into is supply chain restrictions which can affect the delivery of materials. The best way to work around this issue is by working closely with your chosen builder to find alternatives, and minimize any delays. It’s important to reduce these delays since you risk dealing with changing market conditions, and you’ll be incurring more holding costs the longer it takes you to sell (or refinance) the home. Another common issue is regulatory and permit challenges, but most of these can be avoided with careful due diligence and proactive planning.
Tips for a Successful Construction Investment
There are a few pieces of advice to follow that will make your new construction investment go smoothly:
- Partner with experienced professionals for your architect, builder, and real estate agents. Mistakes can be costly, and can eliminate your profit margins, so try to avoid them by all means.
- Stay up to date on local laws and regulations, including zoning and building codes. You will need to do your research before you start building to make sure all necessary permits are in place.
- Incorporate trends: You may be able to increase the value of your property by incorporating trendy design elements, such as open-concept rooms or floor-to-ceiling windows. Sustainability has become an increasingly important feature for homeowners, and can even become a selling point in your listing.
- Leverage technology: When it comes time to sell, you can make use of technology to improve your returns. For example, you can get more views for your property by listing it in different places online (including social media groups) and you can offer virtual staging on your listing to pique buyers’ interests. You can even use software to help manage your project and ensure that things get done on time and under budget.
- Use market data: Knowing your target market can help you find the right time to buy or sell a home. You can also customize the property based on what kind of demand there is in the area.
Financing New Construction Investments
When it comes to funding your investment, it’s better to have financing already in place to make the purchasing process as smooth as possible. You have a few options for financing new construction projects; you can go with a traditional bank loan, but these often have extensive application processes and long turnaround times which can affect the timeline of your project. The other solution is working with a private real estate lender, who can fund your deal in less time and with much less red tape to go through. In real estate, time is money, and if you value your time, a private loan may be the perfect solution for you. For a larger project such as a multifamily property, you may want to consider a financial partnership or joint venture.
If you want to save on a new construction investment, 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 property, RCN Capital has competitive loan options available.Connect with us todayto discuss your next real estate investment.