Buying vs. Building

Short-Term & Vacation Rental Discussions

Buying vs. Building

Member since 2022 · 40 posts · 13 votes

Consider two investors just getting started. One wants to build and is in principle opposed to buying existing structures; the other is only interested in buying.

Which will come out on top?

I know that most will say beyond doubt the buyer, but wanted to see if anyone had perspectives on how the builder might grow faster?

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

They are both good options...one is only better than the other by specific location (and by investor resources).

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
They are both good options...one is only better than the other by specific location (and by investor resources).
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Dan SlaughterPro Member
Developer · GA · Member since 2019 · 74 posts · 42 votes
3y
Too many variables to say one is better than the other. I build but it works in my market for where and what I'm building. What I build likely wouldn't work in a different market.
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James Sloan
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Member since 2022 · 40 posts · 13 votes
3y

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
3y
I would look for a deal on an existing property over dealing with a 1 year long (or longer) build.
Motivated sellers or distressed properties make the best deals.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Hey @James Sloan. Like the others have said, it will all depend on where you are. In the Smokies, building takes over 2 years. Same as in Sedona, AZ. I can get a nice cabin built in Idaho in about 9 months. I know some builders.
As for unique homes, maybe. People keep talking about how unique stays, Instagramable moments etc as the only way you will eventually make any money. I just don't agree. A nice lake front, ocean front, mountain top or cool place right in the heart of the action will always do well. Both as a STR and with appreciation.
A unique home is neat, as a STR. How well does a Geodesic dome sell? They are unique homes and everyone knows what they are, but they take forever to unload and usually at a lower per sqft than a similarly sized "normal" house. A tree house? Not real property for the most part. Same with a yurt, tiny house or a hollowed out fiberglass potato.
What you get with building is you build it to your spec. You could do a 5/7 with all master suites. Everyone has a bathroom. Build a cool kids bunkroom. The possibilities are endless, but it's going to cost you.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
If you want to spend more money and take more time (time = money) then go for the new build. I'd always take the distressed homes and redo them exactly how I want. You save a ton on the start-up costs....
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Bernard Joseph S.
Investor · NJ · Member since 2022 · 154 posts · 223 votes
3y
You make your money when you buy, this includes land you are building on and "all in" construction costs as well as buying preexisting property that's already up and running. There are pros and cons to both. Depending on how fast you can scale, building has a lot of reward including legit equity at completion, high market demand, and almost worry free maintenance, whether you are building to sell or hold. I personally love new construction. But there are many more people making money buying right on value add properties. It's really a personal preference and what access you have to either side of the market. Main point, find what you're good at, can scale then go for it.
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James Sloan
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Member since 2022 · 40 posts · 13 votes
3y
@Bernard Joseph S. This is the critical point. I actually thrive with the construction and renovation aspects. It energizes me to learn from the ground up. I also prefer dealing with architects, contractors (unlike most RE investors), as opposed to real estate agents, lenders, wholesalers, etc. The former are people I can identify with when the are great at what they do. Something also seems lacking for me when I pluck up a property and throw it onto Airbnb. If I am not realizing some vision of my own, I lose all interest. Then again, this is all subjective.
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James Sloan
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Member since 2022 · 40 posts · 13 votes
3y
@Dan Slaughter If you don't mind me asking, how much (roughly) as a percentage do you save by being a contractor for your own projects?
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Dan SlaughterPro Member
Developer · GA · Member since 2019 · 74 posts · 42 votes
3y
@James Sloan I buy the land, then hire the builder so I'm not working as the GC. As stated in one of the previous responses, it's a long and expensive road to go a couple of years before generating revenue. The construction loan I have is interest only and only on what the builder has drawn against the loan. There's a lot of other up front costs, but planning ahead to weather the storm until the build is complete, is pretty profitable on the other side.
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Leslie Anne Morris
Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
3y
If you're investing for cash flow then the buyer will have the advantage. If you have a solid portfolio building could be an attractive option. I'm building STR number 12 now. Highly recommend NOT building LOL.
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Matt Mertz
Leander TX · Member since 2020 · 179 posts · 150 votes
3y
The primary advantage of building is that you can stand out from the competition if you know what you're doing. It's market dependent... how are the local builders, do you have much competition, can you simply rehab an existing property to stand out?
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Bernard Joseph S.
Investor · NJ · Member since 2022 · 154 posts · 223 votes
3y
Quote from @James Sloan:

@Bernard Joseph S. This is the critical point. I actually thrive with the construction and renovation aspects. It energizes me to learn from the ground up. I also prefer dealing with architects, contractors (unlike most RE investors), as opposed to real estate agents, lenders, wholesalers, etc. The former are people I can identify with when the are great at what they do. Something also seems lacking for me when I pluck up a property and throw it onto Airbnb. If I am not realizing some vision of my own, I lose all interest. Then again, this is all subjective.

Well there you go. You can also do flips and BRRRRs to see your vision come through. Design and construction are involved in both but if you want to ground up then pursue it. Curious to see how your journey come along. Consider partnering with people in the areas you want to build to get a head start
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Brian Schlosser
Member since 2020 · 18 posts · 3 votes
3y
I'm an STR investor on the Mississippi Gulf Coast and I utilize both strategies. Mostly we buy existing properties however if we find land in a good area with a view of the water we will buy and build. We are glad we did as home prices shot up here as they did everywhere the last few years. We are currently building a home to STR as it was cheaper to build than to buy. Prices are starting to pull back here a little bit so it may be a toss up which avenue we take next but it's always good to explore every option.
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
I don't believe in new construction right now, builders are hurting, the market is too wishy washy to put money into a 12 month project.
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
When it comes to real estate investments, both single-family and multifamily properties offer their own advantages. Single family homes may provide more control over the rental experience due to only having one tenant, while multifamily dwellings can often bring in higher returns if chosen correctly. Ultimately, which option will be better for a given investor depends on their specific location and resources available. It is important to do the necessary research on both investment types before making any decisions. Ultimately, careful consideration of all factors involved should help an investor make an informed choice that works best for them.
[email protected]832-889-5607
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Bruce Woodruff:

If you want to spend more money and take more time (time = money) then go for the new build. I'd always take the distressed homes and redo them exactly how I want. You save a ton on the start-up costs....

I should have added that this view ^ is based on the current market. In other times, I would call a new build the advantageous move....Just my .02.
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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
3y
When building a STR, "opportunity cost" is often overlooked. The opportunity cost is the income that you lost on an existing property while you build a new property. A new build can take a year or more realistically.
When debating the two, make sure to factor in opportunity cost.
[email protected]806-672-7102
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Andy Whitcomb
Investor · Black Diamond, WA · Member since 2016 · 123 posts · 127 votes
3y
I've been thinking about this buy or build debate for a while now. Like @Collin Hays said, time to market is a big consideration in the STR world. How long will it take for you to start making money after you invest? This is true for most real estate investments, but even more so in the world of short-term rentals.

Another thing to consider is financing. If you're buying a property, you might be able to get better financing options compared to building from scratch. But, for me personally, I want to build because I want to create a better short-term rental than I can buy for the price.

When you build your own STR, you get to pick and choose what you want. You can choose the location to get the best scenery, and build the design that you want. Plus, you can put in specific systems that make your rental low-maintenance, like a whole-house generator that kicks in automatically during a power outage.

So, it really just depends on what you're after. Building gives you more control, but takes more time and money. Buying is quicker, but you have less control. It's all about finding the balance that works for you.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Collin Hays:

When building a STR, "opportunity cost" is often overlooked. The opportunity cost is the income that you lost on an existing property while you build a new property. A new build can take a year or more realistically.
Exactly. To me, it's much like deciding whether or not to go to college. Everyone looks at the potential income they can earn after graduation (note the word potential) but they never factor in the lost 4-6 years of income that they can never get back. In some cases nowadays (the trades) that could amount to $200 - 400k. You always need to look at the whole picture.

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Sanat Bhandari
Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes
3y
@James Sloan As opposed to most people here, I'll say new construction is a smarter move albeit much more capital intensive and riskier. If you have some sort of a competitive advantage/in for the construction process (maybe you're really good buddies with a logistics company, you own a small brick plant, etc)

I know an investor who primarily does SFH/small MFH new construction builds (build-to-rent model) and sells them at the 10-year mark. He never has to worry about maintenance or tenant turnover and builds a ton of equity right from the get go due to his ins in the construction process (best buddies with the largest builder in town and buys land at auctions and city demolition list).

Construction/development projects aren't for the faint hearted and you'll sink faster than an anchor without being well capitalized in that biz but if you can cross those barriers, nothing can generate better returns than new construction
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Chris Kite:

Personally I would look for something built between 2015 and 2020, if possible.
Houses built before this era, even back to the 70s - 80s, are often better quality builds. Since I'm always looking for a full-gut remodel, the few things that are 'ancient' can be dealt with easily. Just my .02...
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Ricardo Hidalgo
Real Estate Agent · Member since 2019 · 569 posts · 257 votes
3y
Quote from @James Sloan:

Consider two investors just getting started. One wants to build and is in principle opposed to buying existing structures; the other is only interested in buying.

Which will come out on top?

I know that most will say beyond doubt the buyer, but wanted to see if anyone had perspectives on how the builder might grow faster?

I prefer to build when the majority of the inventory is older and new emerging building are getting premiums with less insurance cost. I am seeing the majority of buyers opting in for new construction to ride out the recession into 2024 or next vacation rental season.
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Thomas Higgins
Investor · Pittsburgh, PA · Member since 2016 · 78 posts · 45 votes
3y
@James Sloan
This is a timing question. In my opinion, now is the time to buy. There were long stretches in US history where building properties was the way to go. In my opinion, that time will come again.
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Chris Davidson
Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
3y
@James Sloan it really comes down to resources. It is easier to get resources to buy exisiting structures where as having the capital and resources necessary to build can be harder to come by. If they both have an open check book it will come down to who picks the best areas. No one has a crystal ball you don't know what the market will do or if the up and coming neighborhoods will arrive or dwindle down. If the numbers make sense day one woohoo you should be fine.
It doesn't matter if you are building, remodeling, buying turnkey, or what ever it is all about how you create the deal and make it work for you. It is all about your advantages. IMO building can make sense if you have the land or can get a great deal on land. If you are looking to buy land and build it will be hard to beat existing structure prices.
And it all comes down to what. Are you doing commercial, residential, industrial, retail...
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