Hello @Jake Andronico,
I don’t know the Reno market, but here’s how new builds perform in Las Vegas.
Many investors prefer new homes because of lower maintenance during the first few years. That’s true—but it’s the only advantage. To understand why, start with the goal of real estate investing: reliable rental income. Income reliability comes from the tenant, not the property. The property is simply the container the tenant pays to occupy.
For over 17 years, we’ve focused on tenants who can afford $1,800–$2,300/month in rent. Today, these single-family homes cost $350,000–$475,000 and attract exceptionally reliable renters:
- Average stay: 5+ years
- Vacancy rate (600+ properties delivered): <2%
- Evictions in 17+ years: 7
- During the 2008 crash: rents held, vacancies did not increase
- Typical property maintenance: ~$400/year
Why New Homes Don’t Work
Desirable Las Vegas land costs exceed $1M/acre, so new single family homes start around $550,000. The break-even rent on a $550,000 home (25% down, 6.5% interest) is $3,100+/month—far above what our stable tenant segment can afford. Tenants who can pay that much typically stay only 1–2 years and then buy a home.
The Vacancy Cost Problem
Vacancy cost depends on three factors: how long the tenant stays, carrying costs until a new tenant moves in, and the cost to restore the property to rent-ready condition. To compare vacancy costs between the two tenant segments, below is an estimate of the 10-year vacancy cost for a $550,000 new build versus a $400,000 property.
- $550,000 property: Tenant stays 2 years; between tenant renovation cost is $3,000; carrying cost is $3,000/Mo, it takes 3 months to renovate and get a tenant in the property (due to the much smaller pool of potential tenants at the required income level). Per vacancy cost: $3,000/Mo x 3 Mo + $3,000 = $12,000. With 5 turns in 10 years: $12,000 × 5 = $60,000 per ten years.
- $400,000 property: Tenant stays 5 years; between tenant renovation cost is $1,000, carrying cost is $2,200/Mo, it takes 2 months to renovate and get a tenant in the property (a much larger tenant pool who can afford this rent). Per vacancy cost calculation: $2,200/Mo x 2 Mo + $1,000 = $5,400. So, 2 turnovers in 10 years: $5,400 × 2 = $10,800 per ten years.
Due to higher costs, shorter tenant stays, and longer time to place a tenant, the additional vacancy cost difference over ten years is $49,920. This is a huge cost to reduce maintenance costs for a few years.
Maintenance vs. Debt Service
Do the maintenance cost savings of new homes actually result in overall cost savings? No. For example, I will assume the $550,000 new home has no maintenance cost for the first 5 years, and the average maintenance cost of a $400,000 home is $400/Yr (our typical). If both properties are financed with 30% down, 30-year, 6.5% rate, the five year debt service is:
- $550,000 monthly debt service: $2,433/Mo. Five year cost: $2,433/Mo x 12 Mo/Yr x 5 = $145,980.
- $400,000 monthly debt service: $1,790/Mo. Five year cost: $1,790/Mo x 12 Mo/Yr x 5 = $107,400.
The difference in five-year debt service cost is $38,580. The assumed base maintenance cost for the $400,000 home is $400/Yr x 5 Yrs = $2,000. So the incremental cost for the new property is $38,580 - $2,000 = $36,580. This equates to:
- 4.5 roof replacements, assuming $8,000/Roof replacement
-
-
-
Property Taxes
New builds are taxed at ~1% of the sold price versus 0.55% for the property segment we target. What is the property tax difference per year?
- $550,000 x 1% = $5,500
- $400,000 x .55% = $2,200
The annual property tax difference is $3,300. This covers a lot of repairs each year.
Bottom Line
New builds save a few hundred dollars per year in maintenance but cost tens of thousands more in vacancy, debt service, and taxes. For long-term, reliable rental income, existing homes in the $350K–$475K range dramatically outperform new construction (for Las Vegas).
