The demand for rental homes in various markets across the country is very high. Because of the number of people searching for a home to rent, competition to buy existing homes become so strong that some investors are turning to construction to fill the gap. If you are thinking of expanding your rental property portfolio, you might wonder if building a home to rent is the answer.
Depending on your market and building costs, it might make sense to build a home instead of purchasing an existing one. There are several things you need 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. There are some places where building a home to rent will be more cost-effective than 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
Small to midsize investors might find that building a home to rent may not cost less than buying one– even in a competitive market. This is very true in places where the demand for new construction is very high. With the high demand driving up prices, you will have to pay more per square foot than you would for an existing home.
Maintenance and Renovations
As you are comparing, make sure you also include the cost of the amenities and important extras on top of the cost of the property itself. New homes often do not include things like landscaping and 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 comes with additional costs that you should take into consideration, as well. Older homes also need some renovation, and sometimes major repairs, 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. These things wear out so you will need to have them repaired or replaced. These renovation costs should also be considered before you make a decision.
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. In comparison, new builds tend to be in newly established areas that can be harder to assess. Depending on where the community is located, property appreciation may be something you will have to wait for several years for until the area, and even the price trend, is more established. At the same time, market demand and other factors can also bring about a sudden increase in home values for a new area.
In the end, you will have the final say on whether to build a home to rent or not. 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 Locust Grove property managers. If that is the case, reach out to Real Property Management Anchor. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 770-506-1237.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
