In the world of residential real estate, new construction doesn’t get as much attention as other types of property investments. New construction investments are usually profitable because the value of a new home is often higher than the cost of materials and labor used to build it. But with higher interest rates and supply chain restrictions affecting material costs, investors tend to shy away from this type of venture. The key to making a good return with new construction then lies in choosing a good location. Location is always an important factor with real estate, but in new construction it can truly make or break your investment. In this post, we explore some key tips for helping you find a good location to build when making a new construction investment.
Conduct thorough market research
The first step in finding a good location for new construction is choosing your target market and conducting thorough research on it. This means looking at things like the data on current trends for the market. Are lots of people moving there? Chances are it will be a good place to build then. You should also take time to learn about the economic trends in an area. If a particular market is seeing high job growth then it could be an indicator of population growth, and in turn more demand for housing. Finally you’ll want to take a look at the competition in the area. You don’t want to invest in a market that is oversaturated, since it can end up leading to a lower return on investment for your project.
Once you have selected your target market it comes time to analyze potential neighborhoods to build in. Besides the general safety and security of the neighborhood, there are many factors to take into consideration that can affect the demand for housing in a specific area. For example, houses in neighborhoods that have proximity to things like shopping and entertainment centers are going to be higher in demand. Having access to a major transportation hub, like an international airport, is another thing to take into account. You may also want to build your new construction property in an area where you know there will be more development in the future. If you choose to build in a new subdivision where you know lots of other new houses will be constructed, your property is likely to grow in value by the time construction is completed and as the neighborhood develops.
Run the numbers
Now that you have a target market and have chosen a good area to build, you will want to crunch the numbers to make sure your deal makes financial sense. Start by looking at comparable new properties in the same area to get a good idea of the expected final sale price. After that, you should carefully determine all of the costs and expenses associated with the project. This doesn’t just mean materials and labor but also permits, licensing fees, design costs, and marketing costs as well.
If you aren’t confident you can estimate these numbers accurately, you may want to consult a contractor or an experienced real estate agent to get some more precise numbers. It can also be a good idea to leave a 10% buffer in each line item of your budget to ensure your investment will still be profitable. If you’ve found that the numbers all make sense and your investment is likely to make a good return, then you’re ready to get started with your new construction project.
If you want to save on a new construction investment, 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 property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.