If you have been a real estate investor for a while, you may have considered the idea of investing in new construction. While it can be a very profitable venture, it can also be a somewhat daunting task if you don’t have any previous experience with it. There’s more to investing in new properties than simply hiring a contractor to build a home, and you should carefully consider the things a successful construction investment takes before moving forward with one. Knowing more can help you plan your investment better and take in a greater return. To help you find success with new construction, we’ve compiled a list of Pros and Cons of the investment.
Pros of a new construction investment
If you want to make a profit with a new construction project, it helps to know all of its selling points. Here are some of the benefits of investing in new construction:
- Great returns: New construction makes sense as an investment because a property will often be worth more than the cost of labor and materials used to build it. You can further the value of a new property by choosing to build in a good neighborhood, or a hot market experiencing high demand for housing.
- It’s customizable: The most obvious benefit of building a new property is that you get to decide how it will turn out. You can design your property to stand out from the competition, or blend in perfectly with the neighborhood. You can also choose to include features that you know are in demand and can add value to a home. For example: an outdoor shower could be a great feature to add to a property on the beach.
- It’s an easy sell: New properties will always be in demand because there’s a special feeling of being the first to live in a home. They are also built with more efficient lighting, heating, and cooling systems, which means lower monthly bills for owners. Plus, most new homes incorporate modern trends like open-concept design which can make your property even more desirable to buyers.
- It eliminates the unknown: Buying an existing property can also come with nasty surprises, like flood or structural damage you weren’t initially aware of. This risk is completely eliminated with new properties, and you’ll also have less repair and maintenance expenses to worry about if you plan to rent the property out.
- Appreciation: Home values tend to appreciate over time, and that includes newly built homes as well. In fact, new properties with modern features and low monthly bills hold their value really well in the market.
Cons of a new construction investment
There are going to be risks with any type of real estate investment, and new construction presents a unique set of risks that you should be familiar with:
- A longer investment timeline: With new construction, your investment spends more time at risk in the market than an investment in an existing property. You should be prepared to not see returns from your investment until the end of the construction and sale of the property. To minimize this risk, you should spend time developing a good plan, and an accurate timeline to ensure your project stays on schedule.
- Higher upfront costs: New properties are typically high in value, and that means they’ll demand more of an upfront investment from you than existing properties would. Besides the usual costs, you’ll also have to pay contractors for the construction of the property, and permit fees to your local government.
- Chance of delays and errors: You’ll be working with many professionals throughout the process of getting your property constructed, and this introduces some additional risks. You may run into a contractor that does poor work, or a supply chain issue with certain materials. You can help mitigate this risk by vetting contractors carefully before hiring, and by working closely with them to minimize any possible delays with your 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.