As we know, investing in real estate can be a very profitable venture. Conventionally, people choose to invest in homes and properties that are already built. However, there are quite a few benefits of choosing to build a new property, and some of them might not appear obvious at first glance. Let’s go over some of these advantages and explain why they make investing in New Construction a great idea.
The property is new
First, let’s talk about some of the obvious upsides. A new property will not need any repairs and very little maintenance in the first few years after construction, not to mention the more efficient heating and lighting that comes with newer homes. Compare this to any existing property, which may need a lot of maintenance or potentially complicated repairs, and you could be avoiding a huge headache.
Second, the property will likely be built in a more contemporary style. This means you won’t be dealing with a property that looks outdated or doesn’t fit in with the style of homes in the surrounding neighborhood. Both of these things will lead to a higher property value once the construction is finished, and that can be a huge plus for your investment.
It will be a great ROI if you choose to sell the property
One of the lesser known benefits of New Construction is that it can be a great return on investment (ROI) after selling the property. Let’s use an example: say you’d like to purchase an existing property for $150,000, renovate it, and sell it for profit. Let’s say the renovations cost about $50,000, and after all is said and done the After Repair Value (ARV) of the property comes out to a reasonable $250,000, which is the price you successfully sell the property for. With some simple math we can calculate the profit made from the investment. $250,000 (selling price) – $200,000 (purchase + renovations) = $50,000 of profit.
Now let’s do the same thing with a new construction property. Say you spend the same $200,000 on purchasing the lot and constructing the property. Now this property is brand new, and because of that it’s likely that the value of the property is upwards of $300,000, but let’s use that as a conservative estimate. $300,000 (selling price) - $200,000 (costs) = $100,000 of profit. These are rough estimates using simple numbers, but you can see that the new construction example is twice as profitable, and that’s with our conservative property value estimate of $300,000.
Of course, there are many factors that go into determining the costs and values of a real estate investment, and a new construction will likely take more time to complete than renovating an existing property. Any responsible investor will take these factors into consideration before choosing a property to move forward with, and you would be wise to do the same.
It will be easier to sell or rent out
Another great thing about New Construction is that people like living in newer homes. People love new things, and if you had to choose between living in an old home or a new home, you would probably pick the new one every time. Also, newer homes are generally built with cleaner lines and more open spaces which most people prefer. Finally, new homes are usually found in great neighborhoods with other newer homes. All of these factors mean that a new construction will be easier to rent out or sell, and will likely have a higher property value too.
Looking for Funding for Your New Construction Property?
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. RCN Capital also has flexible and competitive loan options available. Connect with us today to discuss your next new construction investment.