In today’s real estate environment, where there just aren’t enough properties available in most markets, new construction delivers much needed properties to undersupplied communities. This can present a great opportunity for real estate investors to generate a solid return while also providing homes to motivated buyers. If you aren’t experienced with new construction investing, or are just starting to get into the world of real estate, you may be caught off guard by some of the key differences new construction has from investing in existing properties. In order to get you up to speed, we’ve compiled a list of everything you need to know about investing in residential new construction property.
Due Diligence For New Construction Investments
Every successful real estate deal starts with dedicating the appropriate amount of time to research and planning. By performing your due diligence with a new construction investment, you can help ensure you have a profitable deal that is completed on time and below budget. You should start by researching market trends in the different areas you are looking to potentially invest in. By identifying markets with key indicators like high population growth or expanding job opportunities, you may be able to benefit from more demand. After you have selected an area, you will also need to take the time to find an appropriate place to build. Homebuyers will be looking for safe communities with amenities like good schools, shopping, and access to transportation.
Along with researching the property, you will need to take some time to build a good team to support you in your investment. First, this means finding a reputable developer that you have vetted, ideally with a proven track record of delivering on new construction projects. You should also look to find a quality real estate agent that can help you make the most of your sale once construction is completed. Finally, you will want to work with a good accountant to help you manage your finances and maximize your after-tax returns.
Advantages of New Construction Investing
There are some significant benefits to choosing a new construction project over an investment in existing property. The first of which is the potential for higher returns, because the final sale value of a new home is often significantly higher than the cost of the labor and materials used to build it. There are also some significant selling points that come with new properties, such as modern amenities, spacious designs, and reduced maintenance costs. By highlighting these features in your listing, you may be able to maximize your returns when it’s time to sell.
The other benefit of building a brand new property is the ability to customize it in any specific way you desire. New properties already sell for more simply because they are new, but it’s possible to incorporate specific features, like energy-friendly lighting and appliances or smart home technology in order to appeal to certain buyers. You can also customize the property with high-end features that can attract premium tenants or buyers.
Challenges and Risks to Navigate
You should also fully understand the risks involved with a new construction investment, and how to navigate any potential challenges that may arise during the process. The most common issue amateur investors run into is dealing with construction delays. This can be mitigated by taking the time to create a good construction plan, and by working closely with your developer to find workarounds. Along with creating a realistic timeline, it’s important to have an accurate budget, and it may also be a good idea to leave a 10% buffer when calculating it to cover sudden expenses or cost overruns.
The other challenge investors experience is having trouble selling the property once construction is completed. By doing your due diligence as we mentioned, you can avoid investing in an oversaturated market as well as mitigate economic downturns. This market research should also help you be priced competitively in your market, but know that you may have to drop your final sale price if a property is taking too long to sell. This stage is also where it will be beneficial to have an experienced real estate agent to make the most of the process and connect you with motivated buyers.
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. Connect with us today to discuss your next real estate investment.