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Investors have been increasingly diversifying their portfolios with new construction projects, as the lack of housing inventory presents a great opportunity in a number of real estate markets. These projects offer great returns to investors, with their modern features and low monthly costs driving high demand for them. Although the final sale price of a new construction property is often higher than the cost of materials and labor used to build it, it can still be a struggle for investors to make a decent profit from these projects. Brokers and wholesale partners play a vital role here, ensuring their clients make the most of their investments.
Continue reading as we cover the key strategies investor clients can utilize to maximize their ROI on new construction projects, and where lending partners fit into the equation to provide them with valuable expertise and insights.
Choosing the Right Location for Maximum Appreciation
If you want to have a successful real estate deal, it’s all about location, location, location. Most investors already know this, but they can use your expertise to help them identify the best and most profitable areas to invest in with a construction project. Take the time to research a number of different markets, and use data aggregators like ATTOM Data and REiDEALMASTER to compare the numbers on them. Some key indicators of a great location include high population growth, a rapidly expanding job market, and proximity to amenities like shopping and transportation hubs. Locations experiencing infrastructure development can also be promising, since property values tend to grow as the surrounding area gets developed.
Selecting the Right Property Type
A commonly overlooked aspect with new construction is which type of property will be most profitable to build. Investors don’t often take the time to consider this decision and will just stick with the standard single-family home. However, in different markets certain property types will perform better than others. For instance, in a market with strong rental demand, a multifamily property can be a smart choice, offering investors much better monthly income than a single-family home.
Bonus tip: The types of amenities included on a property can affect demand for it. Modern home buyers expect new features like smart technology to be included, which means things like smart thermostats, lighting, and locks, all of which can be controlled from a smartphone or central hub.
Leveraging Financing Strategies to Improve Cash Flow
The type of financing secured can end up having a big impact on a project’s final ROI. First, it’s important to ensure that financing terms line up with the investor’s strategy. For example, a construction-to-permanent loan is ideal for investors who plan to hold the property for rental income once it’s built. This can also save the client money as there is only one closing they have to go through.
Be sure to shop around and compare various loan programs to secure terms that are suitable for the investor’s project. As a broker, it’s your role to connect clients with lenders that specialize in new construction, but you also should educate them on understanding the different aspects of a loan, and how to structure financing for optimal returns.
Reducing Costs and Maximizing Profit Margins
There are also some key strategies investor clients can use to reduce the costs of building and owning new construction property. It’s important to take time to negotiate with builders; you don’t always have to accept the first price that is offered. Even if you aren’t able to secure better pricing, they may still be able to provide additional value in another way, like free upgrades on building materials (such as better flooring or countertops).
Another great way to save money is by utilizing energy-efficient materials, and smart technology. High-efficiency insulation and windows will help lower monthly bills, and so can smart thermostats which learn the residents’ patterns to save energy. These features not only help lower the cost of ownership but can also become a huge selling point when listing and marketing the property.
Brokers and wholesale partners can help their clients here by advising them on which features to include in a property that will increase demand and also its resale value. You can also help your clients partner with reliable builders and material vendors to secure better, more cost-effective deals.
Effective Marketing Strategies
Last, but certainly not least, is making use of effective marketing strategies to get the most out of an exit strategy. It helps to have an idea of the target audience your client wants to attract with their efforts, so they can focus their marketing efforts on them. For instance, a family-oriented buyer will be looking for a property with extra bedrooms, located in a quiet neighborhood with access to good schools. Investors can also make use of technology to help a listing reach more people. These include virtual tours of the property, virtual staging software, and posting in local real estate groups on social media.
Brokers can provide additional value in this stage by recommending which groups to target with marketing efforts (backed by real estate data and your expertise) and introducing clients to effective marketing strategies. Helping your clients make the most of their investments builds more trust between you and them, and positions you as a total expert in all things real estate related with the ability to facilitate deals from start to finish.
RCN Capital
The easiest way to save on an investment is to obtain financing from a real estate lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners 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 looking to finance a real estate project, RCN Capital has competitive loan options available.