New construction offers a great opportunity for investors looking at residential rental homes. There are multiple benefits, but one of the biggest worth noting is that you’ll have a full one-year warranty that will cover the majority of your repairs. That’s huge! You’re covered and won’t have to worry about the typical things that could go wrong with home rentals.
Another thing worth noting is the 10-year warranty that covers most of your major expenses like mechanicals. This advantage is something that can save you a fortune. Let’s face it, everybody likes living in new homes, because they don’t have to worry about a lot of problems cropping up. It’s an easy property to rent due to this.
You’ll also find that your tenants will enjoy the new home experience, because it feels more like ownership to them when they’re the first people to live there! This is appealing to the tenant, and they know they need to take good care of the home, since it was pristine when they got there.
But what about investment wise? Are new construction homes worth it? Let’s break down the numbers.
Investing in New Construction
How do the numbers work out? We can gladly tell you that new construction homes can be a great investment. For example, in Marion County, you can get a new construction home for around $130-140,000. Now, rent wise, we’re looking at the ability to rent these units between $1,300 to $1,500 month. Just to be on the safe side, run your numbers right around $1,350, because it will depend on things like the size of the home and location, so err on the side of caution. This way you have a realistic view with room for wiggle.
In general, we’re considering new construction as a 3-bedroom/2-bath home for this article. The average size is right around 1,000 to 1,400 square feet.
What are some of the drawbacks with new construction homes?
Are there areas of concern when investing? One thing to consider is the amount of time it will take for the home to be ready. If you’re going under contract today, it may take up to seven months before your home is actually ready.
What you need to know about permits and time…
A lot of the issue comes down to the permitting process. It’s not anything you’ve done wrong or anything you’re responsible for—it’s simply a process that takes time. Figure there will be a period of about six to eight weeks for new homes to go through a permitting process.
Then, you’ve got build time which is generally between four to five months. So, between those pieces, it’s a big chunk of time. Once it’s completed, you’ll also want to allow a short bit to do any finishing touches—thinks like adding a mailbox, a refrigerator or blinds. You might add ceiling fans. Some of these extra pieces can be handled by the builder if you negotiated that in, while others will be aftermarket care.
We also have in our sister company, Brick City Repairs and Maintenance, what we call our finishing touches package. That includes all those things that aren’t included in the new construction of the home.
What Has Our Experience Been?
We’ve looked at both positives and negatives, but one thing worth mentioning is that it can be challenging finding the right construction project due to the difficulty in finding lots. While there are plenty of lots available, you need to have a good location at the right price. Thankfully, we’ve got great builders coming into town and helping build properties.
Lots are really hard to come by here in Marion County. There are tons of them available, but you truly need to find them at the right price for the best return on investment. So that’s a little bit of a challenge.
What else should you know?
When investing in new construction, patience is important. If you’re looking for a quick flip, this isn’t the market for you. If on the other hand, you’re looking to hold onto that property for twenty or thirty years, seven months is a drop in the bucket and totally worth the wait.
I’m personally building new construction. It’s a smart move for us, and by using a local builder I know what I’m getting. Marion County is well positioned, due to the low unemployment rate. With it being under 6% there should be no problem filling that home. Another thing I factored in is that the housing inventory is low, so there will be demand. We’re at a great place to invest in new construction right now. Also, because of a lot of new employment coming in, a lot of net migration coming into Marion County, the demand will continue.
I’ve also been working with a couple of people as they invest in the area. Two clients in particular are working within a more rural area of Marion County (Belleview and Summerfield) and we’ve been able to see a nice increase in the rental rates. It’s been higher than we expected, which was a pleasant surprise. They’re renting quickly and at rates that make the home owners smile.
Of course, you’re in a better position when your construction is completed. Either way, I think new construction is a great option right now.
If this is something you’d like to discuss, we have agents that can speak with you about the opportunities available, and help you get a new construction home started in Marion County.