Am I an idiot?

Question

Am I am idiot for wanting to purchase a few new build homes and turning them into rentals? Have other investors had recent success with this strategy?

V.G Jason · Answer

Limited to no capex is a farce. Most of these new builds are built poorly.

Don't think buying this is headache free, far from it. Unless you're spec building and understand the elements of it, new builds aren't some physical unicorn. And definitely not some magic pill to investing in RE on easy mode.

Buying a new community with 300-500 new builds but no unique-ness is just buying into a saturated set up. Real estate will always price location, then uniqueness(assuming not distressed). Don't deviate from these two. Almost anyone that says otherwise is likely selling new builds.

Melissa Justice · Answer

@James McGovern,

Absolutely not an idiot for considering new builds as rentals- in fact, this strategy has become increasingly popular and strategic, especially over the last few years.Here’s why this can be a smart move and some key tradeoffs you should know about.Why Investors Like New Build Rentals:Minimal Maintenance CostsEverything is brand new: roof, HVAC, appliances, etc.You avoid CapEx surprises that kill cash flow in older homes.Attracts Higher-Quality TenantsTenants are willing to pay a premium for modern finishes and newer properties.Often longer leases and fewer tenant issues.Stronger Appraisal Value & ResaleBuilders often give you equity at purchase (especially during pre-construction).More predictable ARV (after repair value).Easier Property ManagementLess repair calls = happier tenants = happier property manager.Tradeoffs to Watch Out For:Cash Flow Might Be Thinner (At First)New builds tend to be pricier than older homes in the same area.But this can be offset with higher rents and lower expenses over time.HOAs Can Be TrickyMany new builds are in HOA communities. Some HOAs restrict rentals.Always confirm rental-friendly rules before you commit.Location is EverythingDon’t just buy “new”- make sure it’s in a growth corridor with strong rental demand and job growth. Do Other Investors Use This Strategy Successfully?Yes-- and it’s growing.There’s a reason build-to-rent communities are exploding in markets like:San Antonio, TXOcala, FLCharlotte, NCBirmingham, ALCape Coral, FLColumbia, SCBottom Line --you’re not crazy! You ARE thinking ahead.If you’re focused on:Minimal headachesSolid long-term appreciationAttracting great tenantsLess stress managing properties...then new builds for rentals can be a very smart wealth-building play.Let me know if you ever want to see a few examples of real-world new construction rental deals from solid cash-flow markets - always here to help!

Best of luck,

Melissa

Shawn McCormick · Answer

@James McGovern I've been preaching this for several years to my investor base. Builder control the comps whereever they build, increasing appraised value with each home they sell. Buy early in a community that will have 400-500 homes and you typically get forced appreciation that the builder provides.

Many builder in Orlando are offering huge incentives for closing costs and/or rate buy downs. Its hard to pass up those offers. Warranties, virtually no capX for many years and typically higher rents due to better quality tenants that want to be in areas that are new/safe/convenient.

Some builders (not many any more) will also do model lease backs, they build the model center and sell it to you, lease it back from you until the community gets finished and now you have a virtually new home with tons of upgrades that they built equity in for you. Just another example of how this strategy works great.

Best of luck!

Amber Stout · Answer

Not an idiot at all — honestly, I think new builds are one of the best value plays in Florida right now. Some benefits are lowest insurance costs and if the builder gives incentives for rate buy down and closing costs. The concerns would be around numbers — ideally it cash flows, or at least you’re buying in an area with strong long term growth if you're banking more on appreciation. Happy to chat more if you're exploring Florida markets!

Dylan Vargas · Answer

@James McGovern Welcome! I think it depend on a few things. I think younger investors with a long term horizon (time) and maybe not any rehab experience this is a gold mine to buy new. My Son has done just that while the rates were low and prices were low. He has the time to get the homes paid for in full prior to retirement. Nothing is guaranteed no matter the route one takes but you are not an idiot at this point. Ha! If it makes sense give it a whirl  just dont catch a falling knife! Good luck and keep us posted.

Michael Smythe · Answer

What ROI and cashflow are you expecting?

Unless you put a lot down you will have negative cashflow for typically 3-5 years.

Tyler Gibson · Answer

You have to be ready to hold them for at least 10 years. But otherwise a great move. Builders have incentives but as an investor you may not get some of them like the 3.99% interest rates. This are typically only available for owner occupied homes.

Jeremy England · Answer

You're not an idiot.  Build to rent is a great idea in Florida.  First of all, builders are mandated by law to warranty the project for at least a year.  It's not optional.  That gives you some piece of mind.  That's the minimum.  Alot of builders pay for a 2/10 warranty.  I'll be honest about it.  The 10 year structural warranty thing is good but if you are building in a municipal area the Florida building code is pretty strict.  I'd be shocked to see a house get past the local inspectors that wasn't structurally sound.

Second is the values go up as do the rents.

If you are looking to do business in the panhandle of Florida, shoot me a message and I can elaborate further on building for investors locally.

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