Why New Construction Might Be Your Smartest Move

Question

Are you stuck in the cycle of renting—or watching tenants do the same—while feeling uncertain about stepping into ownership from the investor side? It's common to feel overwhelmed by mortgage terms, down payments, and housing market fluctuations. However, purchasing a new construction home might be the ideal next move for investors seeking long-term equity, minimal maintenance, and strong rental appeal.

Investor Benefits of New Construction:

-Customization: Tailor finishes and layouts to meet tenant demand and maximize ROI.

-Modern Efficiency: Energy-efficient builds attract quality tenants and reduce ongoing utility costs.

-Low Maintenance: Fewer repairs mean fewer headaches and more predictable cash flow.

-Builder Warranties: Reduce capex surprises in the early years.

The FHA loan program, with its minimal down payment requirement of just 3.5%, can be leveraged by house hackers or first-time investors. Additionally, many new builds qualify for conventional loan products with favorable terms. In many markets, monthly mortgage payments are on par with or below median rental rates.

New construction homes often appreciate faster in growing communities, especially near upcoming infrastructure or commercial development. Whether your strategy is buy-and-hold, BRRRR, or short-term rental, getting in early on a new build could position you ahead of the curve.

Breaking free from analysis paralysis and investing in new construction could be the strategic edge your portfolio needs. The benefits—both immediate and long-term—are substantial.

So, here’s the real question:

Are you building someone else’s wealth by sitting on the sidelines—or ready to capitalize on one of the cleanest, most scalable asset classes in the market?

Drop your thoughts below. Is new construction overrated… or the most underrated move in 2025 for serious investors?

Jeremy England · Answer

We spoke last week but i dont think we spoke about contracts. Im flexible on contracts depending on the comfort level of the owner.

So cost plus%, cost plus fixed fee, or fixed price contracts. All have been used and all have pros and cons. the primary benefit to the owner in a cost plus contract is it is going to be cheaper overall.   Because if im offering a fixed price, you can be sure i am building a healthy margin of error in that fixed price cost estimate. As high as i can possibly get it and still get the job. Because im not coming out of my pocket to build your house. Been there and done that. Got the scars. Cost plus fixed fee v %?  Again. The more risk shifts to me the higher im pushing any fixed number.

Id say the cheapest someone can come out in a build is a cost plus %, followed by cost plus fee, the. Fixed price contract.

If you dont trust your builder dont do business with him. Why should you trust your builder?  What are the prior customers saying about him?  Is he candid in his dealings with you or obscuring anything?  Whats his credit like?  Ask him if you dont know. its unconventional but i wouldnt have an issue showing my credit score to anyone. Is he being sued?  Online records make all this very easy.

Working with investors v custom build customers.  Depends on the agreement. Meaning if i have an equity stake ill typically demand a great deal of control of what is going iN that house.  Why?  Because you dont put a 10000 custom shower in a c area triplex.  Not if you plan on making any money. I require that decision power to protect the margins. The investor might make good decisions on that stuff but i know i will.

If i have no equity stake then it isnt much different than a custom build for me. Still need finish selections on time from the owner.  still have to conduct the weekly updates. Jobsite meetings.

they make changes theyll still have to pay the fees required for it. All that is more work.

Jeremy England · Answer

I think if an investor wants to negotiate a single purchase he looks for inventory of new homes on the market for 5+ months and the builder has not dropped the price yet.  He will be wanting to get that inventory off his books.

As far as presale (speaking for myself) there is no negotiation.  I give my best deal up front with a cost + contract.  If the house costs 250 you pay less. If it costs 350 you pay more.  I upload all receipts and invoices and/or timesheets etc to the project management software for the buyer to see the numbers. Jobsite pics/videos uploaded daily.  Weekly conferences with the buyer etc so they monitor progress.

Jeremy England · Answer

Some guys have a wharehouse and buy some items in bulk.  Most of us including the national builders just buy alot from one supplier and get good pricing.  I might buy 30k worth of materials on one house from my lumber company. Still bulk. Just not wholesale

Ariam Jesus Ubieta Sando · Answer

Hey James, great point! Negotiating on new construction is a different animal altogether, but there are techniques that you can utilize, especially when you are ahead of the development or negotiating with builder reps. I am going to have another post up with some of the best techniques that investors can use to gain builder incentives, upgrades, or even price cuts. Stay tuned!

James McGovern · Answer

How about sharing tips on negotiating down prices of new builds

Ryan Arth · Answer

@Stephen Johnston We are doing builds in a development where we have a backend profit split with the land owner. Incentives are aligned.

On another development deal I am the developer, and I have an investor involved. As principal, I hired our construction company to do the build at a fixed profit margin. Sure, I could hypothetically run up construction costs to get extra profit on the mark up, but I would be giving up my return on equity as lead investor (and possibly my invested capital).

So there are ways to align incentives and structure deals.

A model that I am working on now, addressing a question earlier in the thread, is to design an efficient house for build to rent. Then we can do multiple projects for an investor, offering a lower price point than a house designed for a retail buyer.

Stephen Johnston · Answer

What is a typical arrangement between builder and home owner/investor? Taking the land cost out of it, what is typical for cost plus building agreement? 10%? 20%? does the % go down if it's a $500k home vs a $300k home? I've built new construction but it seems like there is very little incentive for the builder to find cost savings if they are just getting a %. I'd much rather have 10% of $1m than I would $900k.

This isn't a criticism pointed at you or any other GC, just something I've always been curious about.

James McGovern · Answer

@Jeremy England do builders buy in bulk or just use the same suppliers and purchase for each house separately?

James McGovern · Answer

@Jeremy England why do you believe builders don't have control over costs? Do they not price shop? Buy in bulk? Use illegal immigrants for labor?

Why New Construction Might Be Your Smartest Move

Most Popular Reply