Hayward, CA · Member since 2017 · 70 posts · 7 votes
Are buying new construction homes (for sale but not yet been built) always good deals? Is there anything you should watch out for?
I am trying to find information on buying under-construction homes online and in real estate books but cannot seem to find them anywhere. Can someone point me to a good source (online, print or on video/YouTube)?
Investor · Philadelphia, PA · Member since 2017 · 73 posts · 58 votes
9y
I think people pay a premium for new homes, much like cars. Once you drive them off the lot, you lose value. If you are looking for something to force equity, it's not likely a new build.
Investor · Moscow, ID · Member since 2017 · 107 posts · 76 votes
9y
in general you make money on the buy. I.E by working to buy a property for far less than market value. Very slim chance that happens with a new build so you rarely see investors buying them.
The new cost could make cash flow tough and the renters could damage a lot of it
I thought sell prices for under-construction homes are cheaper than after they become built?
2 Things at play there. #1 when a builder quotes a price to build someone a house, the builder is presumably quoting the highest price he thinks he can get for it, at that moment. Flash forward 3-6 months when he delivers the house, and the real estate market may have appreciated 10% annually. His $400,000 house might now be worth $420,000. And #2 home builders often incentivize people to plunk down deposits on new subdivisions early in the early stages. You can potentially lock in a "discounted price" early on, like get the same house for $390,000.
So combine the 2 factors, and yes you can be closing on a "$420k" house that you pay $390k for.
Investor · Philadelphia, PA · Member since 2017 · 73 posts · 58 votes
9y
I think people pay a premium for new homes, much like cars. Once you drive them off the lot, you lose value. If you are looking for something to force equity, it's not likely a new build.
I think @Jon Ree said it right. I can't imagine a scenario where buying new builds would be profitable unless your area is experiencing huge appreciation.
For many/most of us investors, betting on appreciation is too risky.
I think @Jon Ree said it right. I can't imagine a scenario where buying new builds would be profitable unless your area is experiencing huge appreciation.
For many/most of us investors, betting on appreciation is too risky.
All of the homes that I am look at in Houston, TX are very old and cost the same (or even more) as a new home. I don't want to live in a very old home...
I think @Jon Ree said it right. I can't imagine a scenario where buying new builds would be profitable unless your area is experiencing huge appreciation.
For many/most of us investors, betting on appreciation is too risky.
All of the homes that I am look at in Houston, TX are very old and cost the same (or even more) as a new home. I don't want to live in a very old home...
You make money by either finding value, and/or creating value.
It sounds like the area you're looking at, builders are tearing down houses to build new. If you want, you could look for a lot, and do the same for yourself. Except you're hiring the builder, and he/she is working on your lot. However, it also carry a lot of risk compared to a move in ready NEW house.
We were in the same boat as you were. So we got adventurous, ran the numbers, found an old house and build our custom house. I got to warn you it's a lot of work. But part of that comes back in the equity we got, and we have a truly customized house.
I think @Jon Ree said it right. I can't imagine a scenario where buying new builds would be profitable unless your area is experiencing huge appreciation.
For many/most of us investors, betting on appreciation is too risky.
In old urban areas new builds are profitable, at least at the 1.5-3+ mil price point. Also it is supply and demand. If you are in an area of only older homes, and you can provide the market a new build, there can be a pretty premium on that.
Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
9y
I like to think of new construction as the ultimate turn-key home. What's the difference!? You are paying FMV or maybe slightly above but your house should be free of problems for a long time. A brand new home even comes with the builders warranty. I have found a good "deal" buying remaining stock in a community. I recently got one for $238k and comps sold for $260k. It was the last one, buyer backed out, all options had been picked (so I had no choice which was fine) and I think I got a fair deal on it. Not going to win award for deal of the year or anything though. Another nice thing was I had a tenant locked up within 1 week of closing escrow.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Appraisals for new construction are a bit rigged.
There is no other type of real estate where an appraiser will say that a $5k counter-top upgrade actually adds $5k of value compared to an equally new counter-top that costs $5k less. Same with all the other upgrades.
And that's before introducing the "builder's pet appraiser" dynamic.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
6y
One thing to look at is that the 1st phase of new construction is usually much cheaper than later builds, because nobody wants to be the first one, so they lure people in with lower prices.
For example - a subdivision in East Point (Atlanta) - the builder started in the mid 180s for the 1st homes. Now the last built homes, a year later, are in the 240s.