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There is really no easy way to put it: the US housing market is still suffering from a severe lack of inventory affecting the ability of buyers to find good properties. Labor shortages and the lingering effect of supply chain restrictions from the pandemic mean there are at least 6 million homes that need to be built before conditions get any better. This inventory shortage presents a unique opportunity to real estate investors, however, especially for those struggling to find properties to invest in. New construction projects deliver much needed homes to undersupplied communities, and can also be a very lucrative opportunity for investors. Continue reading as we discuss the benefits and risks of new construction projects, and why you should consider one for your next investment.
Why Choose New Construction
There are a number of reasons an investor might choose to invest in a new construction project instead of an existing property. New homes have the potential for high returns simply because they are new, and the cost of the materials and labor used in building the home is less than its final sale value. For long-term rental focused investors, new properties cost less to maintain and tend to fetch higher rates on the rental market. And for all investors, new properties have an increased potential for appreciation when compared to existing homes.
The Appeal of New Construction
For homebuyers, there are also a variety of factors that make new construction homes appealing. The modern amenities and styling found in a new property make it stand out from other homes on the market. And there is something to be said about being the first person to live in a home and make use of all its features for the first time. Also, by utilizing modern, energy-efficient appliances and building materials, you’re able to reduce monthly expenses which can become a selling point when you’re marketing the property.
Private Lending: Empowering Investors
Many investors in today’s fast-paced real estate environment choose to work with private lenders to finance their new construction projects. Working with a private lender can bring you some significant benefits over traditional financing providers. Speed is key with almost any investment, and one of the main advantages of utilizing private loans is their quickness. The loan application process is less stringent which means fewer snags when applying, and funding can be delivered in as little as two weeks.
Private loans also allow investors to expand their portfolios by investing in a wider range of properties. Private lenders will be focused on the potential of the investment to determine loan eligibility, which means your personal credit history is less of a factor. Most private lenders will also be willing to customize the loan’s terms to your specific deal, unlike traditional lenders. And by building a relationship with your chosen lender, you may gain access to helpful resources, real estate connections, and a streamlined application process.
Mitigating Risk in New Construction
It’s important that you fully understand the risks associated with a new construction investment before diving into one. Every investment involves due diligence, but crafting an accurate plan and budget is even more difficult with new construction, exacerbated by the fact that you won’t see any returns until the absolute end of the project. Also, know that construction loans tend to have higher interest rates than standard mortgages, which you’ll have to factor into your expense calculations. Time is another important factor, as you will be paying more in holding costs the longer the project takes to finish. In order to avoid this issue, you will need to stay regularly involved in the construction process and work closely with your developer to quickly deal with any delays.
Final Tips for a Successful New Construction Investment
We want to end with some practical advice for making the most of a new construction project. As we mentioned, a little due diligence will go a long way in helping you find success. Before you make any decisions, you should take the time to look at data on a few different markets. There are some key metrics to note, like the direction home prices are trending, population levels, and job growth, which can affect the profitability of your investment. You will also want to take care when selecting your lender; ensure that you’re working with a reputable name in the space with a proven track record of delivering financing for real estate projects.
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. Connect with us today to discuss your next real estate investment.