New Construction as Rentals?

[Kamilla Altunyan]

Has anyone ever purchased new construction homes to use as a rental? If so, how has it been? What do you look for with properties like this? 

[David Ramirez]

I have not purchased a new construction for rental purposes but I have thought about doing BRRRs buying land, building, and then refinancing. This way I would have a lot of build-in equity kept in the property. 

Good luck!

David

[Charles Stanley]

I purchased 2 around Dunnellon about a year and a half ago, contracted about six months earlier…it’s worked out very well with values increasing so dramatically…was probably more fortunate than well planned though, timing can make all the difference in the world

[Jorge Duarte]

Hi @Kamilla Altunyan,

Here in San Luis, AZ it is quite popular for investors out of town typically from California to buy New Construction property for rentals. At first I was like that doesn't really help you add a lot of equity on it, but from 2019 to today that built in equity from the moment the property is delivered to the client, there is equity already built in. The great thing is that with a new construction you don't have to worry of things breaking, since you have a brand new house with builders warranty for up to 2 years at times. 

I hope this help you out. Let me know if you have any questions. 

[Yehuda R.]

I purchased 1  about a year ago, it worked out very well with values increasing so dramatically 

Now im looking to purchase a second one, but prices and intrest rates are sky rocketing

[Kevin M Finley]

I have not myself, nor have I kept anything I've built, but I am in the process of building a 4-unit building that somebody will likely be purchasing as a rental. 

A few of my new builds have gotten offers from rental property investors, but they have not been the most competitive. 

It makes sense for some. While you may pay a premium upfront, you will likely also be getting premium rents and premium tenants, potentially corporate housed. Your maintenance and turnover expense should be minimized for at least the first 5-10 years, inflating cash flow while the property value increases. 

Additionally, there is a lot of 1031 exchange money floating around. These people sold another rental for a reason... and it may have been hassle and maintenance. 1031 money seems more likely to dive into a new build rental, and potentially overpay, just to avoid paying those CG taxes they may be subject to if their 1031 period lapses. 

[Justin Fox]

As long as you can earn your desired profit per month leveraged, it's a good deal.  You also have the benefit of lower capital expenditures up front.
This interest rate environment is pretty ugly though and the Fed's committed to deflation and demand destruction at this point, so you're going to have to find private money builder's hard up for a sell.

We were building to sell but we're about to move back into the build all cash to rent.  Right now, with current rates, a 1250 sqft 3/2 with no garage would run you ~1350/month.  That's with no profit or repair reserve contributions.  I'm looking at right under 1,700.00/month with repairs and a sub-par return.  Makes 0 sense right now in my area.  Rents like these aren't sustainable here and I don't want to get caught with my pants down paying for 8% money (unless stuff starts going for ~80/sqft).

I had a 7% interest rate in '05, but it cost us $65/sqft to build our own home (doing some stuff but still paying a contractor) and that's not happening anytime soon.  We just build another house for ourselves we did a lot of the work and were the contractors: 130+/sqft.

[Jay C.]

Yes I have with great results. That said anyone buying any rental right now has to have a screw loose. The markets are melting down. Interest rates are going to climb thru the roof. Smart $$ is pulled back in cash and waiting. Interest rates keep climbing and builders are going to be left with unsold inventory. Prices will recede. 

[Eliott Elias]

Their usually more conservative investments that will give you no headache. Make sure the builder and HOA allows for rentals in those communities

[Aubrey Maldonado]

@Kamilla Altunyan Yes, I have and so far it has been a good experience. I bought a new construction townhouse in 2020 that my husband and I lived in for a year before turning into an Airbnb. I'm glad we live in it first because there were several after-construction repairs that needed to be made. It wouldn't have been too much of a problem to schedule the repairs as a rental but I'm glad we were able to see them through. We have another townhouse under contract waiting for construction to complete and plan on renting it out long term, so I'm curious to see how this one goes.

What I like is jumping into a new development early (mainly in Phase 1 of a builder's development) because the builder generally raises prices as they build. In the case of our 2020 townhouse, the market in Sneads Ferry, NC, has supported the price increases to the point that we now have about 100k in equity and it's only two years old.

I've also liked the peace of mind that comes with a newer property because all of the main systems are fresh.