Appreciation/depreciation on new builds

2 Replies

Hi everybody. In my patch, Memphis, I am used to buying homes at well below replacement cost. I have an opportunity to start buying new builds direct to builder with some equity in them. What I don't know is what "usually" happens with new home values in the USA.
Are they like cars where they devalue the moment you leave the lot or is it realistic to expect they will hold their value and appreciate over time?

I know this might sound like a ridiculous question coming from me but I have not dealt with new builds before and so my experience buying in the crisis was that I could buy almost new for 20 to 45% off replacement build cost.

These are long term buy and hold and we have good financing available hence the attraction in newer inventory.

I actually wrote an article on my website comparing buying new to "almost new". I did a 1031 for family last year. For many reasons buying two new builds made sense. Personally I wouldn't do it again. I can still buy short sales that have alot more value. The issues is in 5 years these houses are going to be old. So the question is what "value" do they have verses the house 5-8 years older? It comes down to location. If the new houses are in a better location than you are probably good to go. If the location is not good but the house is new, you are going to feel deprecation issues.

Location is everything.  If you are building in an outlying suburb, old houses will not be able to compete with new ones as long as there is more space to build.  Once you're out of space then prices are going to stay pretty stable and start to increase as the population density goes up. 

That's why we have paid $150,000 for a tear down and made 20%+ gross margin on a new build because we are in it for the location.  Keep in mind, you still need positive population pressure to keep those prices going up.

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