Should I make a new one? Investment real estate Or buy an existing home and remodel it?
This year, many real estate investors are asking whether it’s better to just build their own rental home than to buy and rehabilitate a rental home that’s already there. What are the factors that investors really need to pay attention to in this equation? Which is the best move for you?
Purchasing or building dilemma
Many are asking if real estate in their area is so expensive that it is now more profitable to build it. They may have points.
Buying negative cash flow properties in other countries is perfectly acceptable and may be normal, but in the United States it is not necessary — at least not yet. However, many investors are aware that the number of rental housing available is not working. In some cases, this is because investors have not changed demand as the market changes. For others, it’s because prices and demand are so high that properties can’t cash flow when using financing. Please wait until the interest rate rises!
Indeed, in some markets, Real estate agent When Home dealer We’ve set the property prices up to the point where it looks cheap to build. You can literally build a brand new home for less than one person who may be 10 or 20 years old. In the very long term, it may bring better cash flow. But that’s not the end of math. So what else do investors need to consider?
The problem of new construction as an investment
There are three challenges to the new construction strategy.
1. Build time
In many markets it can take up to 12 months to build a house. That is when everything is going well and the construction is done properly for the seasonal weather. For new condominiums and more complex structures, the construction period can be more than two years. There is no cash flow during this period. none. That is, there is no positive return. In other words, all holding costs must be borne by the investor.
The building is very dangerous. There are many additional risks and potential issues that can arise when building from scratch compared to remodeling an existing property. If you decide to sell the asset to someone else, that liability may be extended to one or two years after completion. Remember that you are guessing what the rent is. Anything can happen in the market while you are building.
New construction usually requires a larger down payment. That means coming up with a lot of upfront payments. Cash for land. Cash for building materials and labor. Cash for planning, permits, and holding costs. Next, compare capital diversification to three or four existing rental properties with cash flow. There is a big difference between the potential to build wealth and the yield.
Rehabilitation of existing rental properties
I love new properties. There are many beautiful things. I also like historic homes — but I understand why some buyers prefer shiny new homes and condos. However, another investor may have acquired a portfolio of 10 properties within the time it takes an investor to build a new home or duplex. This is a property that already has cash flow and is making monthly revenue. Leveraged pass means building fairness by gaining valuations on multiple properties at once while providing diversification safety. please think about it. If you plan to own it for 10 years, but spend your time building two buildings and finding a tenant, you’ve already lost 20% of your revenue and cash flow compared to your existing property.
At some point you may need to build a new home, but there are still plenty of vacant homes.Last summer, the data Ratio of vacant homes to homeless people Some vast mansions that were empty could accommodate multiple families. But we are still building something new. That’s something to think about.
The bottom line is that the new home is great. In some cases you will need them. Real estate prices are high in some places. But investors don’t have to build if they can find meaningful deals in other areas. The less speculation, the better.For me, that means buying based on the actual current rent cash flowNot a dice — maybe I’m fortunate to be able to focus on the Midwest, where there are bigger deals on existing homes.
what will you do? Did you have to face this challenge?
Let us know your thoughts in the comments!