The demand for rental homes in various markets across the country is very high. Given that there are many looking for a home to rent, the competition to buy existing homes is so strong that some investors are turning to new construction to fill the gap. Do you want to expand your rental property portfolio? You might also be considering building a home to rent as an option.
If the conditions in your chosen market and the costs involved are favorable, it might make sense to build instead of purchasing an existing home. There are a number of things you have to know before deciding to build a rental.
Consider the Cost
Home prices and the cost of new construction vary widely from market to market. You have to know your local market well enough so you can decide on the best option that makes sense for your investment strategy. In some places, it can be more cost-effective to build a home to rent instead of buying one. It will be to your advantage if you already own a vacant lot, have a good relationship with a contractor, or else have the edge on a new construction project.
Local Market Demand
Even in a competitive market, small to midsize investors without such contacts may find that building a home to rent may be more costly than buying an existing home. This is very true in places where the demand for new construction is very high. Higher demand typically drives up prices, and you will end up paying more per square foot than you would for an existing home.
Maintenance and Renovations
When comparing costs, make sure you include not just the cost of the property itself but the amenities and extras that are important to you as well. New homes also don’t always come with landscaping and other finishing touches, like appliances. But they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years. Given all the advantages and disadvantages, it is important to know what you will be getting for your money and consider all costs in your calculations.
On the other hand, buying an existing home also has added costs you need to consider, as well. You may need to renovate and repair older homes before you can lease them out. They may also have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. Since these things wear out, you have to repair and replace them. These added renovation costs should be included in your decision-making process.
Long-Term Appreciation
Another key thing to keep in mind is the long-term potential for appreciation. It is usually easier to track value increases for existing homes since there are many comparable properties and established rental history in the neighborhood. New builds, on the other hand, are usually in newly established areas that may be harder to assess. It could sometimes take years before your anticipated appreciation is realized depending on where the community is located. It could take long before an area becomes more established and tracking of home prices becomes available. At the same time, there are also instances where a new area experiences sudden increases in home values due to market demand and other factors.
Finally, it is your sole responsibility to decide whether or not to build a home to rent. With good market data and a clear investment strategy, you can make the best decision for your situation. You may also want to get some expert advice from professional Tenafly property managers. If that is the case, reach out to Real Property Management Concierge. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 201-514-1603.
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