If you are a real estate investor, chances are most of the properties in your portfolio were already built before you decided to invest in them. Existing properties are certainly easier to get into for beginner investors, but there are also benefits to investing in new construction that should not be ignored. In fact, an investment in new construction can often lead to greater returns than existing properties for a variety of reasons. Are you considering adding a new construction property to your portfolio? Here are a few of the benefits that come with this type of investment.
Sometimes, buying an existing property comes with its fair share of problems. Depending on the age of the home, there may be all sorts of repairs that require your attention. The worst of which are the more hidden issues, like water or structural damage, which may not rear their heads until well after you’ve completed the purchase of the home. These issues will not be a concern for you with newly constructed properties, and if you plan to rent the property out afterwards it can become a selling point for your tenants.
Besides not needing any repairs, new homes will often cost less to maintain than an existing comparable property, especially in the first few years after construction is completed. Landlords often budget maintenance costs for each of the properties they own, but these expenses amount to very little with a newly constructed home. New properties are built with higher standards for efficiency when it comes to lighting and appliances, which can lead to lower electricity and utility bills. On top of this, new homes use better insulated materials than older homes which means lower heating and cooling costs.
There is no doubt that new properties sell for more than comparable homes of an older variety. There is something special about being the first to live in a home filled with brand new appliances and features. A new property can be very appealing to home buyers and that can translate to great returns for you as an investor. If you want to maximize the return you can make with a new construction investment, be sure to incorporate cost-effective features that add significant value to the home while costing you relatively little during the construction process.
There is a risk that you run when buying existing properties, and that’s owning a home in a bad location. If you don’t do the proper research, you may end up with a property in a less desirable area which can completely kill your returns. This is less of a concern when building new properties since they are often located in subdivisions with other newly constructed properties. By the time construction is completed on your home, it might even be worth more due to the up-and-coming neighborhood that has been built around it. Another great strategy is building in a hot market that’s experiencing rapid-growth or high demand for housing. If you take the time to find such a market, your home is likely to sell for above the asking price.
Before you jump into a new construction project, you should consider some other factors that can affect your investment. First, you should know that there are higher upfront costs for a new construction property. These properties are generally worth more than existing homes, and you’ll be paying for permits and fees on top of the materials and labor it will cost to construct the property. Second, you should be aware of local trends in the market you’re building in: if nobody is purchasing new properties in your particular market you may have a hard time offloading the home. Finally, you should be aware of the construction timeline. You will not see the returns of your investment for months, until construction is completed and the property is finally sold.
Have you been considering an investment in new construction? 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 property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.