Are new construction homes a good investment?
In the world of real estate investments, there are several niches in which you can specialize. Each requires a thorough knowledge of the property’s needs, risks, and rewards to succeed.
Although it is more common to hear about house flippers and investors that turn foreclosures into rentals, new construction investment is another niche that can bring you great returns. This type of investment offers some unique advantages that are not always included with a fix and flip, providing potential for excellent long-term passive income.
There are also some risks to consider so that you walk into the situation fully informed. When you work with a real estate agent from Marketplace Homes, you gain access to valuable insights. We also offer a unique advantage with our connections with most of the nation’s top 20 builders. Are you ready to explore the pros and cons of investing in new home construction? Let’s take a closer look.
How Are New Constructions Different from Existing Properties?
A new construction is any structure home builders make from the ground up. It has had no previous occupants and comes “move-in ready.” This type of investment has some unique strengths that allow investors to avoid some problems existing single-family investments face.
For instance, fix and flips can be risky because a foreclosed home may require more repairs than initially expected, which can bring down profits. New constructions, though more expensive than distressed properties, come with brand-new materials and are up-to-date with current regulations. You don’t have to worry about remodeling or fixing leaking roofs.
Other Ways New Constructions Are Unique Assets
Potential Growth in Value
When a neighborhood is in the works, a new construction’s future home price is also “under construction.” As more homes develop around it and amenities pop up in the area, the home becomes more marketable.
It’s not unusual to see a trailblazing new build sell for much higher than its purchase price after a few years. In established neighborhoods, home value growth is more subtle since its value in the real estate market is more predictable.
Attracting High-Quality Tenants
New builds tend to pop up in fresh areas that are detached from areas with higher crime rates. This naturally draws higher quality tenants that are willing to pay extra to be in a safe place that doesn’t require a lot of repairs. Then, when it’s time for a resale, the home is more likely to attract homebuyers that are more financially fit.
Fewer Maintenance Costs
Though no new construction is perfect, landlords who own a newly built home typically enjoy years of freedom from big ticket repairs like roofs, windows, flooring, and foundation issues. This makes it a low-risk rental property in terms of maintenance. They also come with new appliances. Since they don’t require immediate renovations or upgrades, you spend little on upkeep in the first few years.
Though these are general advantages, each property is still unique in terms of marketability and value. To make the best investment decisions, consult a real estate agent who can advise you on the most lucrative areas and types of property to buy. They can also advise you on which areas to avoid due to risks.
Energy-Efficiency
A brand-new home is built to code with modern energy-efficiency standards. This makes it an excellent investment property for landlords that want to save as much as they can on energy bills.
Considerations for New Builds
Although new builds bring plenty of advantages to the table, there are a few considerations to make before an investor enters this niche.
Higher Costs
New builds have new everything, which means that the current market value for building materials and labor go into the final cost of the property. Existing homes have more stable housing market values, while additional costs can appear during the building process. To avoid this pitfall, never accept a price that is at the top of what you can afford but leave some room to be comfortable.
- Note: A higher home value means higher resale value in the future, so a higher cost isn’t something to fear if you sell the home for a gain in the future.
New Homes Settle
Unlike established homes, new homes have some quirks such as settlement. This is normal. While older homes have had their times to shift and settle, residents of new homes may be surprised to hear the occasional creak or pop that is associated with home settlement.
This process is natural, but it can be alarming to a tenant of a new home. The best way to avoid any surprises is to partner with a brokerage that works with industry-leading house builders who are professional and informative to their clients.
Fluctuating Value in First Years
In the first few years of a new build’s life, its price can fluctuate due to the development that happens around it. Then, the numbers become more predictable as home values in the area stabilize.
Tax Considerations
Owners of new builds may rejoice at their low tax bill the first year then get sticker shock the next year. This is because it’s difficult to assess the value of the new build, which leads to a possible property tax surprise after the assessors get their numbers right.
On the other hand, landlords can benefit from many rental property tax deductions, especially if they can claim expenses like mortgage interest on newly constructed home rentals and professional fees for services property management.
Nota Bene
As a general rule of thumb, investors should be prepared for increased taxes and be prepared for extra expenses during the building process. The cost of materials, labor, and interest rates can fluctuate. Staying in close communication with your builder and real estate agent will help you make the smartest decisions for your investment portfolio.
Why Invest in a New Construction Home?
When you invest in a new build, you can stand out from your competitors because you are operating in a niche market. New builds often attract homeowners who are ready for the next step and are moving beyond the starter home. Here are some examples of some unique new build advantages.
You can participate in up-and-coming markets.
When you trailblaze, you can get a foothold in an area that later may become too expensive or exclusive to make a reasonable profit. Imagine being one of the first people to invest in an area that later becomes a hot spot for celebrity homes and resorts. That new build that once cost more than the existing home in the same vicinity is now worth far more than you imagined.
- Note: Appreciation isn’t a guarantee, which is why you should work closely with a real estate agent who can advise you on what new builds could be in emerging markets.
No Competition!
There’s nothing more stressful than attending an auction on an existing property, only to be outbid by a person who threw in 20k more than they should. You know you’re smarter than that, so you walk away, but the frustration at losing another opportunity remains. However, when it comes to new developments, you’re the only contender. All you have to do is strike an agreement and wait. If that’s not a great reason to buy new construction, we don’t know what is!
Customizable Options
When you establish a new build plan, you are in control of the floor plan. This allows you to choose the most marketable option for future returns. With existing homes, it takes a lot more effort to renovate or make additions. In buyers’ markets, builders may also offer buyer incentives like veteran discounts or free material upgrades.
How to Invest in a New Construction
So, if you are interested in investing in a new construction after weighing its pros and cons, then come onboard! At Marketplace Homes, we have a variety of solutions that typical brokerages don’t offer, such as creative new construction programs that free equity and offer exclusive savings on commissions.
If you have a portfolio of properties that you would like to release in favor of new constructions, we can also assist you with portfolio disposition to help you pay for the new build in cash. Save your place in emerging markets before the competition rises by locking in on new builds.
The Marketplace Homes Advantage
Not only do we work closely with many of the nation’s top builders, but our agents are experienced in new build transactions. It’s wise to have a real estate agent represent you in a new construction build purchase. There are extra details at play with a new construction contract that real estate agents can help you navigate so that you know exactly what to expect throughout the process.
Invest in New Constructions with Marketplace Homes
If you’re ready to take the next steps toward becoming a new construction investor, then speak to one of our agents today. As a nationwide full-service brokerage with robust builder connections, our realtors can help you purchase a new build in emerging markets around the country. Contact us today to learn more about how to get started.
Alicia Persson is a Content Strategist SEO writer at Marketplace Homes, utilizing previous years of experience on real estate teams that specialized in investments and property management. Before she joined Marketplace Homes, she was also a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.