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It should come as no surprise that the US housing market is going through an inventory shortage. With demand exceeding supply by so much it can be very difficult to acquire a property, especially at a reasonable price. For investors, this can be a big hurdle since getting a good deal on a home is the first step to a profitable investment. But have you considered the prospect of a new construction property for your next investment? New construction can be the perfect solution to a high-demand market, and it can be very profitable as well. Continue reading to learn some of the ways you can utilize a new construction investment in your portfolio.
Build-to-sell
This is the most straightforward method of making a return with new construction property. That’s because a new home will often be worth more than the cost of the materials and labor used to build it. There’s a certain kind of appeal that comes with new property, since there’s a special feeling of being the first person live in a home and use all its appliances for the first time. Plus there is less maintenance required on a brand new home. For these reasons, you should have no trouble finding a buyer for your property once it’s built. But you can take your profits even further by choosing to build in high-demand markets like those around up-and-coming cities.
Build-to-rent
The other solution for turning a profit with newly constructed property is to rent it out. With rents in the US continuing to climb, build-to-rent communities will grow as they become more financially viable. This strategy works great for investors looking to build a solid long-term portfolio. It can also serve as a backup plan if you’re struggling to find a buyer for your property immediately after construction. Renting the home out allows you to make a return from the property in the meantime, and then sell it at the end of the rental period. Your home is likely to gain value from appreciation during this time as well.
Build smaller properties
With new construction, it can be more profitable to build and sell multiple small properties than investing in one large property. For example, let’s say you have $150,000 in capital to invest in a new construction project. If you were to build a home with that amount, it’s value is likely to fall in the $190,000 - $225,000 price range, for a maximum profit of $75,000. Now if you were to invest that same amount into two smaller properties ($75,000 each) it’s likely they will fall in the range of $110,000 - $150,000 each. This will give you a maximum profit of $150,000, potentially doubling your return. This strategy works best in growing markets where there is high demand for housing, like the neighborhoods surrounding up-and-coming cities such as Austin and Charlotte.
Things to keep in mind
Location will always be a big factor in determining a property’s sale price. People want to live in safe neighborhoods with access to amenities like shopping centers and entertainment nearby. You can benefit from appreciation if you choose to build in a growing market or an up-and-coming city. It may also be a good idea to build in a developing neighborhood with other newly constructed homes. By the time construction is completed on your property the surrounding neighborhood will have grown, adding value to your home.
You also need to be careful to choose the right features when building a property. Things like an in-ground pool or sauna may not appeal to everyone, and can actually keep a buyer from choosing your home. It’s better to go with design decisions that you know will have broad appeal. Stick to neutral paint colors for the walls, since they can always be repainted by buyers afterwards, and don’t include any features that may put any potential buyers off.
RCN Capital
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 an investor looking to finance a new construction project, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.