New Build for Rental?
Member since 2019 · 90 posts · 40 votes
I'd like to see what your opinion is on this idea. If I am not in a hurry to get my first rental started, is buying a new build for rental a good idea?
Upsides:
1. It is a bit below market price, not by a lot, but at least 10-20k in my neighbourhood.
2. It will be brand new, which means the CapEx would be low relatively.
3. You design it the way you want your rental properties to be!
Downsides:
1. It takes 6-8 months to be built, which means almost a year without making any return.
2. There are relatively less data for you to evaluate the rental property.
Let's hear what you think!
After buy/repair/hold 19 SFHs, I'm building a couple new 3BR/2BA 1100SF SFHs on a split lot for around $140K each. About the same as I can buy and repair currently. I'll GC and PM to keep the cost low. It's an OK deal, not a brilliant deal. But I'd much rather get up in the morning a walk a building site than a golf course.
@Jonathan Yeh Honestly, if you are able to justify that the numbers would work, I think it's not a bad idea actually.
ONE THING: Yes, you may not have to worry about CapEx right in the beginning but if you plan to stay in the REI business, CapEx is an ongoing element. So, there is no need to avoid it, as it will happen over time even with new construction.
@Jonathan Yeh Another thing or two I didn't mention.
Research the neighborhood and find out what kind of tenants you are likely to get, what kind of PM you can get, and the rent per square foot.
Generally in the 4 markets I am currently in, the worst case scenario is rent is $1.00/sf. My best is $1.43 and average is $1.12sf. I paid on average $1.52sf.
Someone else said you get better value for smaller footprint houses, I totally agree with that statement.
So if you are going to use a builder to build a home you design, can you build a duplex?
Bottom line is do your research of the market and return. If it makes sense and cashflows, you're ahead of the game.
I am building a "potential duplex". Separate entrance to the basement with finished basement suite. With that being said, it is actually illegal to run basement suites in where the house is being built. Apparently it's very common in Calgary..all about loopholes in a nutshell. The rent is actually not horrible I guess, I can get about $1.2-1.4/sf, depends on if I'm including basement or not. But I'm not sure if Canada and US can compare this equally.
@Jonathan Yeh Honestly, if you are able to justify that the numbers would work, I think it's not a bad idea actually.
ONE THING: Yes, you may not have to worry about CapEx right in the beginning but if you plan to stay in the REI business, CapEx is an ongoing element. So, there is no need to avoid it, as it will happen over time even with new construction.
Thanks for the tip! Although CapEx won't be an immediate issue, I will still include that cost in my budgeting, but with smaller percentage to begin with. If that makes sense :)
We have built several houses to rent. Some notes to add to the convo:
Thanks for the tips! I actually upgraded mine from 1400 sf (3 bedrooms) to 1750 (4 bd) + basement suite. so 5 rooms in total. The upgrade is about 30k. Still debating between renting as SFH or duplex. What do you think?
At $85/SF, that seems like a good rate for more SF. What was the $/SF for the first 1400 SF? If you paid 90/SF for the first 1400 then 85 isn't that exciting and I would hope you can get a good bit more rent for it. Otherwise you might get some equity but mostly your payment just goes up.
Speaking of equity, what are comps like? If most houses are 1400 SF, you are devaluing your $/SF. You could be spending $30k to get 30k of value (break even). And if it doesn't cash flow better, it's a waste of money. But if houses are 2000 SF, then you'd likely be fine. That sort of thing.
A duplex is a pretty significant shift. I'm confused how you might just decide halfway through the project to have a duplex? It's an entirely different floor plan and design. Electric/plumbing is way different. It's a whole different project. Also, is it even zoned for duplex? If not, probably a dead end. If it is zoned for duplex, and you are building to rent, I would start with a duplex in the first place. Unless you want equity. then a SFR might be better in the long run.
I've never thought to look at it by SF, thanks for the tip. I basically have this property build as if it's a duplex (separate entrances), but it'd still be able to rent as a SFH. Usually the market then would be for people who are living with their parents-in-law or taking care of their parents.
Not worth it, I say this as someone with a house that has a detached 2 garage with apartment. It's all on one meter so utilities can't be split so it's not nearly as valuable as a rental as I thought it would be .
Plus I just have more expenses to keep it up as well...with not a ton of added benefit.
the people looking for this type of arrangement often want to buy... Not rent. The people renting often looking for a their own space not to cram more people into an a single home.
I've been considering the same idea. I have built two houses that we used as personal residences, so I know I could manage the project and do much of the work as well. There was a Video Podcast on BP featuring Cameron Skinner who does new construction single family rentals
I've been considering the same idea. I have built two houses that we used as personal residences, so I know I could manage the project and do much of the work as well. There was a Video Podcast on BP featuring Cameron Skinner who does new construction single family rentals
I gotta find that podcast and listen to it!