New Construction vs Rehab Property

8 Replies

Hi! Future potential investor here!

What was your first property? I’m looking to start investing in rentals, single family, and I’m wondering if it would be more beneficial to buy a fixer-upper as my first property, or a newer construction.

I'm sure there's a lot less ROI on newer constructions, but they do feel relatively safer since there shouldn't be as much to rehab, and would be quicker to start renting out. Is it more important to start slow with a safer option or to jump right in?

On the other hand, a rehab would allow you to get a higher return, and not just in cash flow. Since I’m newer to property investing, I don’t know how to find out how much it would cost to fix up a property. Who do you go to? Does it cost money, and if so, is it something that can be financed into the mortgage.

Would love some help! Thanks!

Stick with a fixer upper. New construction is more complicated more permits and planning and a chance of a smaller ROI. Look at the cost of building materials right now. I think your best bet is to find a really good deal on something that needs rehab and has comps around it to support your ARV. Start small, develop a team and see how it goes before you go all in!

@Bill William Hi Bill! I appreciate your response! I should’ve phrased my post better. I meant to ask the comparisons between rehabbing an older home and purchasing a newly built home. Since I’m a newer investor I think it would be more in my wheelhouse to purchase a home already built.

I'd go somewhere in the middle. There is almost no ROI on new constructions, and old properties can be a huge headache. I think 1950-1990 is the sweet spot for getting ROI and not needing extensive repairs

You might find that building new and working with a general contractor will yield more profit in the long run. It's essentially like buying wholesale. Expect to save 15+% on the cost of the home and potentially save 6% on realtor fees as well as the markup on the land itself.

if you wanted to earn 8% on your money, we are always doing new construction and usually limited on a maximum number the banks let us loan for. For example, most of the banks we work with have a maximum of 2 homes at a time and we borrow from 5-7 banks at a time in addition to private money.

I tell people all the time to stick with SFR and small multi family's. Houses all around the country that were built from 1950-1980 that are prime for picking. They need more than lip stick but nothing crazy. I think that's the sweet spot. Once this crazy market cools down there will be more opportunity I just don't see an end in sight quite yet.

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