With so many opportunities and investing strategies, deciding which avenue to explore can be challenging. Many rental investors look for run-down properties to fix and flip, but why not try something new? Buying a newly constructed property for your next rental investment is an excellent way to switch up your strategy and earn solid returns. If you’ve never considered this investment strategy before, read along as we review the pros and cons.
Contents of This Article:
- What Is a New Construction Property?
- Benefits of Renting a Newly Constructed Property
- Disadvantages of a Newly Constructed Property
- Tips for Investing in New Construction
- Managing Your New Construction Income Property
What Is a New Construction Property?
New construction is precisely what it sounds like–a newly built property, including residential, mixed-use, or commercial properties. There are a few different ways to invest in newly constructed property. For instance, you can buy land and oversee the construction process or buy a newly constructed property right from a real estate developer.
However, before jumping into this investment strategy, it’s important to recognize the rules and processes of buying newly constructed property. For instance, researching is crucial if you’re buying a property right from a real estate developer. You’ll want to see their previous work and other developments they’ve completed. Additionally, you’ll want to look at reviews from other buyers they’ve sold to.
Another large part of investing in real estate is finding property management. After all, once you buy a new build, you’ll need to market your rental, find tenants, and maintain the property. Luckily, Richmond property managers can help with the entire process.
Regardless of your investment strategy, success depends on your short-term and long-term goals. So, if you’re considering buying a newly constructed property, read through the pros and cons to see if this strategy aligns with your goals.
Benefits of Buying a Newly Constructed Property
Buying a newly constructed property comes with several advantages. For instance, it’s more appealing to renters; you can earn higher returns and have fewer maintenance concerns. If you’re considering this investment strategy, here are some of the main benefits you’ll experience.
- Location- Location is one of the most important aspects of any real estate investment. While it’s possible to profit from real estate in a mediocre neighborhood, you’ll succeed more in a nicer area. Look for new construction builds near good schools, clean parks, and communities with low crime rates.
- Maintenance Costs- Newly constructed properties have fewer maintenance issues than older properties. They generally have newer appliances, which means fewer fixes. As such, newer properties are usually financially beneficial to investors within the first few years.
- New Warranties- If something goes wrong in a new construction build, it’s usually covered under warranty. Some new home warranties can last between one and ten years. So if you find issues with the property, you can contact your builder instead of spending time and money on fixes.
- Increased Supply- New construction properties are generally easy to find. Unlike foreclosures with high competition, you can usually find a new property easily in a good location.
- Appreciation- Property appreciation is one of the most significant benefits of real estate investing. With newly constructed properties, the benefits are even more exciting. For instance, the value of the land can drastically change as you build and develop the area further.
Disadvantages of a Newly Constructed Property
While there are several excellent benefits to buying new construction properties, there are a few disadvantages to consider as well. However, don’t let the cons discourage you, as every investing strategy has pros and cons. Generally, the benefits outweigh the disadvantages, especially with new construction builds.
- Higher Prices- Newly built homes are inevitably more expensive than older homes. So, a new construction build may not be ideal if you’re a new investor or want to buy on a budget.
- Hard to Negotiate- Homes on the market are priced by the previous owner based on the market value. As such, there’s room for negotiation with a previously owned home. However, newly constructed homes aren’t priced the same way. Instead, prices are set by the builder who constructs them, and they don’t usually negotiate.
- Uncertainty- Older rental homes have a history for investors to rely on to research property taxes and potential cash flow. With new construction builds, it’s hard to know your property taxes until the property has been appraised. Additionally, it’s hard to determine the potential cash flow of a property that’s never been rented out before.
- Construction Timing- Some investors secure new construction deals while the development process continues. However, the arrangement can leave investors in a pinch if the construction doesn’t go to plan. Several things, like weather, sickness, or supply chain issues, may impact the construction process.
Tips for Investing in New Construction
If you’re planning on buying a newly constructed property, you’ll want to do as much research as possible and reduce the uncertainty of your investment. As such, here are a few tips and considerations to remember.
- Research the community and what it has to offer. You’ll want to look for new construction builds in areas with room for growth.
- Shop around before choosing a loan. After all, there are several options out there, and you may find a better opportunity than the builder’s lender.
- Negotiate creatively with builders. While they may be unwilling to drop their price, they may be willing to cover closing costs or choose better amenities at no additional fee.
- Don’t assume the home will be perfect because it’s a new build. Newly constructed properties can have issues, too. So, make sure to perform a thorough inspection as you would with any investment property.
- Work with a real estate agent that’s familiar with new builds so they can help you navigate the process.
- If you’re looking at investing in a property that’s not fully finished yet, get a guarantee from the builders. That way, you can include requirements and details of the quality and when the property will be complete.
- Plan your budget ahead of time but leave some wiggle room. After all, with a new construction build, you can incur additional costs for customizations, landscaping, appliances, and additional features.
- Sometimes, builders have relationships with title companies, mortgage brokers, or appraisers. So, consider working with people within their network, as you may be eligible for a discount.
Managing Your New Construction Income Property
Buying a newly constructed property is an excellent opportunity for investors to switch up their strategy and earn solid returns. However, owning newly built properties requires careful research and planning. Additionally, you’ll want to find a trusted property management company to look after your rentals and keep them maintained all year round.
Need More Advice? contact us today!
Bay Property Management Group offers comprehensive rental management services for properties near Baltimore, Philadelphia, Northern Virginia, and Washington, DC. If you’re looking for help with marketing rentals, screening tenants, or maintaining properties, contact BMG today to learn more about our services.