How can I invest in new homes?

Question

Hey there!

I live in Central Oregon and work for a home builder. After my generous employee discount, asking prices are lower than most (if not all) resale prices in this area.

Understanding that BRRRR homes should be "distressed" so that the flip adds value, my question is:

How can you "add value" on brand new homes? What are the highest return strategies to increasing refinance value on new homes?

I want to flip, refinance, and rent the properties.

Thanks for your expert advice!

Nathan

Nicholas L. · Answer

The passage of time.

Account Closed · Answer

Thinking about this more, it might be advantageous to simply house hack, move out, rent, repeat.

Otherwise, it looks like I will have to find a way to buy the house, then get more than one unit out of it.

Thanks for the thoughts, all!

Chris Watkins · Answer

Unless you are changing the occupancy to STR, MTR, or some other use to reposition the property, there isn't a lot of value you can add to a new build. Quick increases in value are hard to come by, unless the area gets really hot and interest rates drop a lot, creating a frenzy. Not a confluence of factors I would bet my money on. They can be great to rent if you are putting lots of cash down, but otherwise aren't going to give you a quick return.

Jon K. · Answer

Howdy Nathan,

How much of a discount are we talking about here? There isn't going to be much of an opportunity to improve the value of a new build through a remodel so unless your discount is something along the lines of 20% or better, this may not be a good fit for the BRRRR strategy but that doesn't mean that it isn't a good opportunity for a different strategy.

Just thinking out loud, maybe it could be a good fit for a lease option or rent to own play.

Robert Ellis · Answer

Build a floorplan or style of property that allows for this to happen. this is just development. buying land, entitling it, building a single or multi (most the time multifamily) and refinance equity out. All construction loans are typically on LTC and have equity. if builders couldn't generate equity why would they do it? It isn't going to be in Oregon I can tell you that unless it's rural which I'd never touch.

Jake Andronico · Answer

Nathan, we're seeing the exact same thing here in Reno, NV. Amazing buyer incentives on new inventory. Key difference in existing resale with inventory so low: Not all sellers have to sell their home. ALL new builders do. As @Nicholas L. said beautifully, the passage of time. Brand new asset, likely more favorable rents, earn more money and learn how to get another.

Robert Ellis · Answer

not true. we build a stacked triplex. 50k land, 300k hard cost, 10k soft cost, appraises 500k, rents for 5k a month. total return of capital within 12 months. we build at 20-25% equity because it's direct to developer and general contractor. we are vertically integrated. I sold 3 of these just in the last 45 days alone with very complex underwriting and it takes time to understand it but same strategy. He shouldn't just buy a finished product he should take a little more calculated risk with a pathway that others have done and he can get a full return of capital without the loss or his money getting "stuck" like we talk about. it's niche for sure but no different than what any developer does, we just cut the investor into the development and construction stack and do it in smaller zones where we know the numbers can support that.

Robert Ellis · Answer

new builds can give you a return. we build direct to investors with 20% equity positions where they can refinance their cash out in columbus OH. I sold 3 of them this month. total return of capital within 12 months, meets 1% rule, 8.6% appreciation for new builds in our market. Buy and hold strategy. Totally wrong here. maybe if you buy a new build at full market price but there's plenty of strategies to new builds. lowest land cost and highest resale per square foot in residential appraisal typically.

How can I invest in new homes?

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