Brand new single family home for Rental (Houston) GOOD or BAD?

5 Replies

Hello, BP folks - long time listener, first time poster. Looking for my first (buy & hold) rental investment - considering a brand new home as a potential rental investment. What is yall's opinion if this is a solid investment or if I should skip and proceed elsewhere?  This would fall under way more than a turnkey investment as the builder is high quality and maintenance would be minimal for 5-10+ years, so I like the "easy button" aspect of this option.

I like the long-term equity play on this, but there is obviously a very low cashflow, so curious what others more experienced folks here suggest I should think about on this decision...???

Purchase price is $440,000 with potential monthly rental income of $3,000. More details in the attachments below. 

Thank you for your help!!

Ok - the idea of buying a brand new home because everything is under warranty is a good idea, but I would recommend looking at starter homes. The number of people looking to rent a home at $3,000 per month is pretty small - people with that kind of income are more likely to be buying a house, not renting. What this means is that your house will likely sit empty for months while you look for a renter.  90+ days of vacancy - which brings us to the problem with your cash flow analysis.  You're assuming in your numbers this place will stay occupied for 12 months straight.  Of course, that's not realistic.  You should factor in long vacancies and then ask if you're willing to fork over all that cash to pay the note while it just sits there empty.  I wouldn't. I'd consider getting a starter home in a community with a good school district.  Shoot for $250 or less.  

I hate investments-by-rule-of-thumb but it's hard to make $ renting a $440k home for $3000/month.  Normally I wont' pay more than 100x rent as when I do, cash flow becomes hard. 

I just bought a bunch of $240k patio homes in the galleria that rent for ~2100-2200/month.   Those make money.  I paid almost half as much per unit vs yours but am taking only a ~25% rent hit.

THAT SAID:  If you can get cheap 30 year money on the home and are sure you can get that $3k, it's not going to be a terrible deal.  Just not the type of numbers you'll be able to scale with. 

@Dante Peduzzi , no way would I buy a new, quality build property for $440k with $3k/month for a rental.  First, the margins are too thin, second, unless the tenant had some serious skin in the game (meaning heavy security deposit), it's pretty risky for the owner.   

Look for a deal from a motivated seller--please don't tell me there are no deals there.  There are ALWAYS deals to be made if you look at enough property.

Good luck!

@Dante Peduzzi Like others have said, I won't buy this property. 

I will rather leverage the down-payment of a $440,000 on 3 different properties in a decent school district.

I am closing on a 3bed/2bath new construction for Long Term Rental soon and the purchase price is $176,000 with a monthly mortgage of $1405 (15-years Mortgage) and it will rent for $1550 so you can see that this number is tight. 

I I will have a better cash-flow if I do 30-years loan but the goal is to use this rental property to fund my 3-years old daughter college fund so that by the time she's 18 and getting ready for college this property will be paid off and at least double the purchase price. 

I have also helped 4 of my Investor Clients acquire same property directly from the builder

New Construction make sense for a lot of reasons we all know BUT at what cost? 

Focus on properties under $200,000 and you will be fine.

Reachout if you need help.

Goodluck

Thank you all for the input!  What I had expected, so it's great to hear the valuable feedback from experienced folks out there.  Much obliged for replying and giving me lots to think about.

While I still love the idea of newbuilds, I will keep things simple in this early stage of my investing.  Hope to have many more questions in the future to mean that I'm actually progressing with some number crunching.