As a real estate investor looking to add to your portfolio, you might wonder whether to invest in a new construction build or buy an existing structure? We’re here to help you weigh your options. Below we list the benefits and potential disadvantages of investing in new construction rental homes.
Benefits of a New Build
Often, it makes more sense to invest in a completely new construction build rather than buying and renovating an existing home.
Short Term: Save Money and Stress
From a financial standpoint, you may save money and stress starting off anew. For example, you’ll likely have less maintenance and fewer minor repairs during the first few years. In all likelihood, you won’t need any major repairs (such as roof, foundation, or air conditioning units) for the next 10-20 years. This can lower your out-of-pocket costs to minor upgrades or normal wear-and-tear. While interest rates are making it more challenging, it may potentially give owners high cash flow during the first few years.
Warranties and Better Construction Codes
Owners of new construction builds benefit from manufacturer warranties if anything should go wrong during the warranty period. In addition, newly constructed homes must follow the latest building codes. These newer codes, especially in Central Florida, were created to ensure structures can better withstand hurricane forces. This protects both life and property.
Renters Prefer Newer Properties
Generally, tenants prefer to rent a home that is newer as opposed to one that’s 30-50 years old. The amenities won’t be outdated or as worn. As more and more people work remotely, renting a home in town near the office or workplace becomes less important. That has extended renter demand outside the confined city limits to more rural areas with the space for new construction builds.
Faster Equity Growth
New construction homes can start at around $250,000. As of the time of this writing, Interest rates currently sit just north of seven percent, but many builders are offering substantial rate discounts with many offering in the high five percent, for qualifying investors. Historically, homes appreciate well in Florida. When tenant rent pays down the mortgage while the home appreciates, the investor obtains equity on two separate fronts, another financial benefit.
Long Term: Future Selling Potential
Another advantage of new construction builds is their future salability. New builds in high growth areas (such as Ocala, Summerfield, Palm Bay, Marion Oaks, Belleview, Ocklawaha) can sell faster with better returns.
Disadvantages to Consider
Investing in new construction, like many investments, has both advantages and drawbacks. We wouldn’t be doing you any justice if we just focused on the benefits. Here are some additional considerations when considering whether to purchase new construction..
Lower Rent Rates
Less populated rural areas, where you’ll find space for new builds, may fetch lower rent rates. You expect to see much different rates in rural areas than within larger cities like Orlando.
Competition for a Smaller Applicant Pool
This is evident in an area such as Marion Oaks. Here, rental homes all have similar layouts and you’ll find multiple vacant units available. This is not inherently a bad thing, but if multiple similar properties experience a vacancy at the same time you are likely left with price as the determining factor for applicants.
Quality of Materials
They don’t make ‘em like they used to. A quick trip to any big box lumber store will show you exactly how less durable current building materials are to days gone by. For example, take a look at the quality of wood today versus decades ago. Over the decades wood framing has gradually reduced in size as the demand has skyrocketed.
Considering A New Construction Build?
Should you invest in a new construction build in Central Florida? Talk to our in-house Broker, Tommy Weclew. He partners with a number of trusted builders and can help you find the best investments. Contact our sales team to learn more.
As the highest 5-star rated Orlando property management company, The Realty Medics can help you get the best ROI from a new construction rental home.
