Build a house to rent out OR buy existing house

2 Replies

I have the ability and knowledge to build four new construction single family homes with a construction loan but usually higher interest rates. However, I think there are some good single family home deals on the market currently and would need a loan. Does anyone have an opinion on which I should do? I struggle with this because I have four lots that are paid for and all utilities to the lots. I can build the houses for $80,000 (very simple) or purchase on the market properties for around $125,000. Any thoughts?

The first question I'd ask myself, in your position, is can you build houses up to (or down to) the standards of the neighborhood you're building in.  

There are a ton of factors that go into deciding whether or not to build vs buy.  But when you get to a certain point, after you can answer the big time questions like the one above, you just need to research, pick a path and take it!

When you build, you generally need to be able to put more money down (for land and foundation) without making any rent during the construction (first draw is usually AFTER foundation).  Unless of course you take another of the many paths besides a typical construction loan like a private lender.  

What it'll come down to is your research!  I think most importantly is LOCATION LOCATION LOCATION. A lot of things can make or break you, but IMO, market is one of the biggest factors from the get go.

Get to know the market:

Are there future plans for developments in the area? 

- Will drive down competition for your home

- Will potentially increase your construction standards

Are there houses similar to the house you can build?

Are the prices for these houses what you wish to sell around?

Will the finishes be of the same quality as the home next door?

Is there even a demand for new homes?

What is the rental market?

There have been many success stories doing both of these things, both are proven, so it's about market&numbers research and making it work for YOU!

You hadn't mentioned if you had built houses before, so if you had, I'm sure you already know most of this stuff...and it really comes down to which numbers work for you and your dedication to the construction project.  Building a house and being able to market it and invest in it is a good skillset to have!

Good response @Jame V. and great info in the links provided.  I'm looking in to this strategy as well.

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