Rental Investment- New homes vs old

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Rental Investment- New homes vs old

Mak J.
Member since 2018 · 234 posts · 44 votes

So, while i was looking for rental investment properties in Houston, TX, I came across a builder whose target is starter low cost homes. They are selling 1400 sf +/- for 180k +/-. Ofcourse it has small porch type backyards only. But at the same time if I look for older homes, all of them are 190k. 

Assuming numbers make sense, If I am just looking for rental investment, would it make more sense to just buy a brand new home? This way I get warranties for first few years and no maintenance. 

The only concern to me is that although the builder is very known and good ones, does low cost home have low quality stuff which may become a headache down the line in next 5-6 years?

Anybody who have look into such scenario and have bought brand new homes and rented out?

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  • Daniel Lioz
    Houston, TX · Member since 2019 · 99 posts · 26 votes
    6y

    Also consider appreciation, if builder is building a lot of these homes, you will have 0 appreciation until he leaves the area, so competition for rental will be higher....while an older home might be in the area where the lot appreciates.  Also, consider value adds with older homes, you can do little rehab or cosmetic item that will cause the value to increase.  Also look at rental incomes and schools, cheap rentals in new homes may bring down schools over several years, but again as you said, cheaper ownership in the first 5 years or so.  Things to ponder on.  Good luck.

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  • Mak J.
    OP
    Member since 2018 · 234 posts · 44 votes
    6y

    Good points. Also once concern I have is this is a low cost builder trying to advertise $0 down, $800/month mortgage homes. Hence they help low income with all government subsidies etc. So now I will be competing against my rent which will be around $1500/month in the same community.

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  • Mak J.
    OP
    Member since 2018 · 234 posts · 44 votes
    6y

    So I was running the numbers. If I buy a new home which is 1700 SF on a lot of 4500SF (No backyard), its targeted to low income starters home. The ROI comes to be around 5%. I will be making cash purchase. The house is selling at $190k. Since I am buying from builder and they do cookie cutter homes, there is no room for negogiations or upgrades. Tax is 3.4%

    Is a 5% return good? The builder plans to built around 800 homes and they raise prices

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  • Mak J.
    OP
    Member since 2018 · 234 posts · 44 votes
    6y

    So after lot of thought, this is what i figured out. Older homes comes out to be cheaper as land appreciates and building material deprecites. So buying new homes, you loose some

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