What are your thoughts on New Construction?

Question

Hi BP Fam -

I am interested in investing out of state.  I am looking for a BRRRR in Houston, San Antonio, Atlanta, or Tampa.  But I am finding some new construction in Houston and San Antonio that looking interesting.  What are your thoughts on buying a New Construction Duplex and renting for a long distance investor?

Thank you in advance for your help!

Joe Splitrock · Answer

@Elin Trinh you will get push back from people on BP about new construction. The BRRRR drum beat is loud here and everyone pushes the idea you have to buy distressed and rehab. In my market all the biggest and most successful investors are building new construction. They are not here on BP talking about it.

Here is my theory on why. If you are in the business long enough, new construction is the "next level". At some point you get sick of dealing with C class tenants and managing rehab. New construction gets better tenants and avoids surprises found in used properties.

Once you reach that level, you don't need to take advice on internet forums about LLC and how to collect rent. In other words, the big players are building new and they are not here talking about it.

Jingru Sui · Answer

@Elin Trinh

Typically if you get in early in a new construction neighborhood you will most likely benefit from the force appreciation from the community. Everything 3-5 houses sold will increase your value up by maybe 5K (that’s what I see in Atlanta) imagine in a community with 100 houses. Imagine the forced appreciation after 3 years! Just want to point this out.

Elin Trinh · Answer

@Wale Lawal - thanks for the blog post suggestions.  I see a lot of your posts in the forums.  Thanks for all the advice!

Joseph Cacciapaglia · Answer

In general if you're buying new construction from a builder, it's tough to make the numbers work. If you're happy with lower cash flow, and just looking to get into a rapidly growing market, then buying a new construction duplex here in San Antonio isn't a bad idea. I have a couple of clients doing exactly that.

If you're talking about building yourself, that's a different story. I'm building a couple of investment homes here in town, but I don't think I would attempt to do this long distance.

Matthew Rolf · Answer

@Elin Trinh in Houston right now, there have been 3 new developments of small multifamily that I've personally looked into on the NW side of town.   In the biggest development, investors were buying duplexes before breaking ground at around 350k then within 12 months they were completed, put in tenants, and were selling those same duplexes for 440k+.   Obviously there are some holding costs during development, but investors are making money in new construction.

Jeffrey Evans · Answer

@Elin Trinh I just closed on a new build just north of San Antonio in New Braunfels.  If you have the capitol to leave the 20-25% in the property or you are not really trying to grow a real estate portfolio super fast, then it can make sense.  Plus for me, my wife felt more comfortable and secure with a new build vs a fixer upper since we live out of state and felt there were less risk with it.  All that being said, it would be nice to have some of the money back out of the down payment to buy another place though.  :)

Kenton LeVay · Answer

I think New Construction gets a bad rep in the investor community because it's hard to add value like you can on an old, neglected property. However, there are advantages to buying New Construction as rental property, mainly being that you should have relatively low maintenance costs in the first couple years and lower vacancy because tenants want to move into a new, clean place (vacancy is obviously heavily dependent on the market as well).

I guess it just comes down to how you want to use your cash. The advantage of BRRRR is that you can own a rental with low or no money down but it requires a lot of work. The benefit of New Construction is that is essentially turn-key but you will likely need to put 20%-30% down.

All this to say, I don't think there's anything wrong with buying New Construction property long-distance. Just make sure you have a great property manager who has market knowledge and you should be good.

Wale Lawal · Answer

You are welcome.

Mike Dymski · Answer

New construction is not inherently good or bad...it depends on the location and price and the resulting returns.  We need the numbers....price, rents, expenses, predictable appreciation, and the resulting IRR.

Elin Trinh · Answer

Hi @Jeffrey Evans - Congrats on the new investment!!

What are your thoughts on New Construction?

Most Popular Reply