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Brian Outland
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New home construction good investment?

Brian Outland
Posted Aug 2 2020, 08:52

I'm a first time real estate investor and recently purchased a new construction in a Centex/Pulte neighborhood . It's the 5th house in the neighborhood that will build out to 199 homes over the next few years. The neighborhood is just down the street from my primary home and the neighborhood is minutes from the interstate and shopping as well as the best school district in the area. I bought the home at $267K (2667 sq ft) using a mortgage (75%-2.75% int rate 15yr) and heloc interest only (25%-3% int rate). My total monthly payment will be around $1950. I'm looking to lease at $2100 a month, but good if I break even or potentially drop slightly below break even monthly. Even though at $2100 I'm breaking the golden 1% rule on monthly roi, my strategy on the investment is to let the house appreciate for the next five years (avg 2% annual increase). I would then assess selling the home at $295K plus the principal on my mortgage will have been paid down by the tenants by around $67K. My return would be $95K. After paying the realtor 6% and paying capital gains tax (unless I decide to roll into another investment property), I should still clear around $70K+. I know there is risk with vacancy rate and getting the rental rate we want, but the new home warranties eliminated the headache of repairs (at least initially). The HOA cost is baked into my $1950 mortgage. Looking for an expert to tell me what I'm overlooking here, but after running the numbers it seems like a solid investment and a solid return after 5 years with no investment of cash out of my pocket (unless I need to cover some of the mortgage if I don't get the rental rate of $1950 plus). Also, we researched other 4 bedroom 2.5 bath homes in the area and they are renting from $1700 to $2700 on average (none are new construction homes). Finally, the home I purchased is the cheapest per square foot in the neighborhood and the largest at $101 per sq ft. Since we put down our deposit (close in November) they recently increased all homes $5K (mine would now be $272K if I bought today so appreciation is already happening). Again, please tell me the pros/cons I may be overlooking here as a first time investor.

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