Would you buy a new build specifically as a rental property?

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Would you buy a new build specifically as a rental property?

Briette Awbrey
Phoenix, AZ · Member since 2016 · 9 posts · 1 vote

I'm currently selling my primary residence (that I bought in 2011). So I'll be making a nice chunk of change & need to invest a portion of it into rentals. 

Would you recommend buying new builds if my plan is to hang on to them long term? My mentality is that there will be less cap improvements / maintenance (hopefully) + there's no inventory in our market currently.

2nd part question - Do builders have an issue with purchasing as an investor rather than primary residence?

FYI: This isn't my first rental property, I've owned multiple. Also, "long term" would mean 15+ years (sell when my toddler graduates HS).

Let me know your thoughts!

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Joseph Schweizer
Investor · Member since 2020 · 291 posts · 592 votes
5y

Hi @Briette Awbrey!

I am not sure if you are looking for a specific area, but I know @Zach Lemaster has some new builds in Florida.

Best Wishes!

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  • David K.
    Property Manager · Alpharetta, GA · Member since 2021 · 52 posts · 33 votes
    5y

    Absolutely! We have several builders here in Atlanta that are building brand new homes that make great rentals. We currently manage 5 or 6 with one builder alone. They demand excellent rents and just fly off the shelves when available. It helps having a year builders warranty to get any imperfections fixed, and then all of the appliance warranties. Generally speaking there's very little maintenance those first couple of years, knock on wood.

    I would just check with the builder to make sure the HOA doesn't have any rental restrictions. Lot's of neighborhoods can have a maximum number/percentage of rentals allowed, so getting in on that at the ground floor is advantageous. I think it's the best way to go if you have the equity to make it cashflow decently. You're 5-10 years away from early appliance replacement, and with proper HVAC maintenance, and inspections, you could get 15 years out of that house and get out before having to replace anything big.

    That's all in a perfect world. We've got some pretty good areas in North Atlanta for this....if you ever want to leave 100°temps to fly to Atlanta, and feel what 170° is like when it's really only 86°.

    0Reply
  • Briette Awbrey
    OP
    Phoenix, AZ · Member since 2016 · 9 posts · 1 vote
    5y

    Thank you for your insight! I just made appointments to talk to builders tomorrow. Are there certain overlooked builder upgrades you'd actually pay for / upgrades to avoid? 

    0Reply
  • David K.
    Property Manager · Alpharetta, GA · Member since 2021 · 52 posts · 33 votes
    5y

    Not specifically, I'm sure there are features to avoid in certain situations. It's really more of mortgage v. target rent balance to find the desired cash flow. The last couple of investors, or at least the last investor that comes to mind for us needed to 1031 a healthy amount of cash. The debate was one fully paid off house or two houses with small mortgages. They went with the latter, the first rented in a couple of weeks, the second one in days. That was July/August, only one work order for maintenance between the two in that time, and that was for an oven fully under warranty, I just called the Whirlpool guy.

    Both are around $2K/month rent, I think the investors mortgages for each are under $1K, so they're just crushing it. 

    0Reply
  • Joe FunariBusiness Member
    Real Estate Agent · Keller, TX · Member since 2017 · 850 posts · 825 votes
    5y

    @Briette Awbrey Yes, new construction are great for especially first time investors for the very reason your capex/maintenance expenses the first few years. I have helped many clients purchase new construction SFR's here in the Dallas/Ft. Worth area. The only problem is the large national builders (Lennar and D.R. Horton) won't sell new construction to investors. Namely because the demand is so high for any homes here and no inventory to speak of. But I have been successful in working with other builders to help clients find new construction. The advantages of the 2/10 warranties, low capex/maintenance the first few years are very popular with my first time investors.

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Briette Awbrey, whatever market you choose don't forget to talk to smaller builders in the area.  We've had clients with great luck buying builder lease backs for model homes.  The builder sells to you and leases back for a period of time they think it will take to build out their lots.  Upon end of the lease there's usually a clause that they restore it to "like new" condition.  You get their best build cause it's a show case for them.  You also get a built in tenant who won't call you for repairs.  And like everyone has said not having to budget for cap ex is a win win win.

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    1Reply
  • Tina Tsysh
    New to Real Estate · Orange County, CA · Member since 2020 · 214 posts · 184 votes
    5y

    Yes! Listen to the most recent Bigger Pockets Rookie podcast show # 49. It will make you not want to buy anything else BUT new construction!

    0Reply
  • Briette Awbrey
    OP
    Phoenix, AZ · Member since 2016 · 9 posts · 1 vote
    5y

    @Dave Foster, wow.... that's genius. I just wonder how much more rent you can get for the model units to the general public. I assume the model homes are significantly more expensive then their lower grade homes. But this is something for me to ask the builders tomorrow. Thank you!

    0Reply
  • Joseph Schweizer
    Investor · Member since 2020 · 291 posts · 592 votes
    5y

    Hi @Briette Awbrey!

    I am not sure if you are looking for a specific area, but I know @Zach Lemaster has some new builds in Florida.

    Best Wishes!

    4Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Avoid areas with HOAs.  Why not build a new rental?  I'd also check local rules to see if you can build one with an in law suite or basement unit, so you get two rentals.

    0Reply
  • Briette Awbrey
    OP
    Phoenix, AZ · Member since 2016 · 9 posts · 1 vote
    5y

    great idea @Theresa Harris... I'll add that to my list of questions to ask the builder.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    5y
    Originally posted by @David K.:

    Absolutely! We have several builders here in Atlanta that are building brand new homes that make great rentals. We currently manage 5 or 6 with one builder alone. They demand excellent rents and just fly off the shelves when available. It helps having a year builders warranty to get any imperfections fixed, and then all of the appliance warranties. Generally speaking there's very little maintenance those first couple of years, knock on wood.

    I would just check with the builder to make sure the HOA doesn't have any rental restrictions. Lot's of neighborhoods can have a maximum number/percentage of rentals allowed, so getting in on that at the ground floor is advantageous. I think it's the best way to go if you have the equity to make it cashflow decently. You're 5-10 years away from early appliance replacement, and with proper HVAC maintenance, and inspections, you could get 15 years out of that house and get out before having to replace anything big.

    That's all in a perfect world. We've got some pretty good areas in North Atlanta for this....if you ever want to leave 100°temps to fly to Atlanta, and feel what 170° is like when it's really only 86°.

    Do those new builds in Atlanta cash flow? If so, I'd be interested in finding out more. I have a lot of investors who would be interested.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    5y

    I think others have mostly answered it. Definitely check on the HOA for renting restrictions. But after that, it just comes down to the numbers. There are pros and cons for new construction vs existing properties. Existing properties have a proven track record (one way or another), and new construction doesn't. But then new const has the benefit of being... new. There's also a difference of whether the new const is in in-fill lots or a whole subdivision full of them in terms of the value it will hold along the way.

    0Reply
  • James Mcsweeney
    Denver, CO · Member since 2020 · 112 posts · 95 votes
    5y

    Not sure about your area, but around here we are seeing that the new neighborhood's HOAs are having rules like "only 20% of homes at any given time can be occupied by tenants." So if an owner-occupant wants to move out and rent it they actually have to apply to the HOA to see if they're even allowed to rent their own house out.

    In my experience working with investors, they tend to loathe HOAs. My guess is that's a huge part of why investors seek existing homes and older HOAs without rules like that.

    My friend is president of his HOA and he's lived there about 15 years. Told me they just keep getting stricter and stricter and usually about stupid stuff like the color of front doors, or how early you're allowed to put garbage cans out.

    0Reply
  • Adam Azam
    Investor · New York, NY · Member since 2020 · 119 posts · 84 votes
    5y

    @Briette Awbrey It is a numbers game. There are areas that work and those that do not. All things being equal a new house is less work and attracts a better Tennant. It is unlikely you will get them at discount in this market. I have been looking at purchasing land and hiring a small local contractor to build on in fill vacant land and rent or resell the property.

    0Reply
  • Nam Trang
    Investor · Seattle, WA · Member since 2020 · 106 posts · 89 votes
    5y

    Saying this is how ALL new homes is built is a stretch. You can find good new construction if you're willing to do your research. Just like any product, the bottom of the barrel spec homes that are churned out assembly line style are going to be lower quality than older non spec homes. Unfortunately, when the market tanked a lot of builder response was to build the cheapest homes possible to keep their prices reasonably low while keeping their actual margin high.

    0Reply
  • Teri Feeney Styers
    Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
    5y

    @Briette Awbrey I bank on investors buying my new builds - although I always create a product with two units. Maybe by visiting with locals in the REI you can find someone like me.

    0Reply
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