Buying vs. Building

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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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Tanner Johnson
Member since 2019 · 40 posts · 42 votes
3y
If you are capable of doing a lot of the work yourself and are friends with contractors you can really drive the price down on a new build and be at your own will when buying materials and timeliness of project, honestly building a house as your own GC can be a great side hustle if your willing to look for deals on materials and do a lot of the work on your own and you can build it for about half of what the value will be when you're done. But this is absolutely not attainable for the normal investor. As well as if there is growth or opportunity in developing in your area but this usually requires a lot of capital and relationships. Otherwise buying is more attainable and cheaper.
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Chad McMahan
Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 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?
Generally, and with many exceptions, buying resale is far more cost effective, and yields far lower opportunity cost, as well as holding cost.
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Ruchit Patel
Bay area, CA · Member since 2021 · 383 posts · 306 votes
3y
to maximize return, of course, building wins. Permits, and lenders, and coordinating with builders will require a lot more hustle, and the entire process will test your patience.
If you have that, it's worth doing.
I am doing in Ocklawaha, and Cape Coral.
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Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ 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?

An EXPERIENCED builder is different than a Builder.
Someone with industry knowledge will fare better at building than a New Bee.
But all in all, building is what "Builders" do.
If you are a "Builder" you will build--if you are an owner you will buy.
Building adds a lot of financial Snakes to the already present Risk of this business.
Unforeseen construction delays, site theft, permit scheduling, being a "Small fish" when hiring subs, who may duck your job before completion to take a better job--never to return, no framework to evaluate subs, no framework to issue lien releases, no frame work to make sure workers on site have maintained insurance and not canceled the day after you checked it, etc...
Just my 2 cents.
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Account Closed
New to Real Estate · Fort Lauderdale, FL · Member since 2022 · 52 posts · 34 votes
3y
Of course, it is difficult to say who will come out on top, but here are some factors that you might want to consider!
Some factors include market conditions, individual investment strategies, or how they execute those strategies. I'm sure you know, but the extent of success depends on the ability of the investor.
The builder will have greater control over the development process and can create greater value. One famous builder is Fred Trump(Donald Trump's Father). He came to America, and he started building single-family homes and eventually built building after buildings and managed to build them way under budget, making a fortune for himself. Fred Trump found himself at the opportune moment, when President Roovesbelt signed the New Deal, encouraging residential construction. He used subsidiaries to build his empire, and he became very successful. Of course, currently, there is no New Deal, no Roovesbelt, and no cheap loans.
The building also requires more time, effort, and capital to get started. It's easy to underestimate the cost of construction. For example, ROBUILT, one of the hosts of the bigger pockets podcast, tried to build a small house in his backyard for 35K. It cost 75K. So the investor starting out would like to watch out for that.
One possible course of action might be to start out as 'the buyer', and then move on to 'the builder' if an individual wants to get started on building. I hope this helps!
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Dave Skow
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
3y
@James Sloan- tough to answer but in general buying an existing property will be more efficent and likely just as profitable as building one
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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, there is no one-size-fits-all solution. What works for me in my market might not work for someone else in a different market. It's important to consider all the variables and experiment with different strategies to find the best approach for your situation. Ultimately, success depends on being able to adapt and adjust your approach as needed - no matter which strategy you choose.
[email protected]832-889-5607
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Gabe Soria
Member since 2022 · 9 posts · 7 votes
3y
There is no one way to invest. Both have pros and cons just as short term rentals and long term rentals have pros and cons. When making a decision, study the market as much as possible and understand what you are capable of. One huge factor is what market you are buying or building in. In the Fort Myers area, new builds are starting at $1M, thus limiting the amount of people who can purchase the property. But if you flip a property with and ARV of 250k, the number of buyers who can purchase after the fact is much larger.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Thomas Higgins:

There were long stretches in US history where building properties was the way to go. In my opinion, that time will come again.
Absolutely! Everything is cyclical in life, and particularly when you're talking Real Estate.....
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@James Sloanwhat do you mean by come out on top?
What do you mean by grow faster?
It depends who you represent; yourself or other investors? Everything else being equal it's easier to build a STVR at a lower cost per square foot than it is to buy an existing property at that same cost. Lower cost per square foot increases ROI, cash on cash return.Disclaimer: when building land has to be available reasonably close to a vacation area.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Gabe Soria it does not cost a builder $1M to build in Ft Myers area a 5bed,4bath home. The cost to build is not the same as the listing price.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Scott Macyou neglect to mention the investor who hires a builder to build a pre-determined designed STVR, at a contracted price. And at same time has an agreed upon triple net lease agreement in place ,upon completion, with a STVR management company paying investor lease payments greater than cash on cash of 18% per year.( assuming leverage)
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Martin D.
Realtor · Sedona, AZ · Member since 2020 · 69 posts · 42 votes
3y
Here in Northern Arizona, the cost of building new is the same cost as buying something beautiful turnkey. The only advantage you would have going the building route would be to create something very unique from scratch.
I've done full gut jobs in about 1 year versus 3 years for a build from acquiring the land to listing on AirBnB.
Buying a distressed property at a bargain and doing a full remodel would be the way to go, in my opinion, and for my market (Sedona, Verde Valley, etc.)
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Bernard Joseph S.
Investor · NJ · Member since 2022 · 154 posts · 223 votes
3y
Quote from @Gabe Soria:

There is no one way to invest. Both have pros and cons just as short term rentals and long term rentals have pros and cons. When making a decision, study the market as much as possible and understand what you are capable of. One huge factor is what market you are buying or building in. In the Fort Myers area, new builds are starting at $1M, thus limiting the amount of people who can purchase the property. But if you flip a property with and ARV of 250k, the number of buyers who can purchase after the fact is much larger.

Clarify new builds. Are you talking buying preexisting new construction or building bottom up? I can assure you it cost nowhere near $1M to build in Fort Meyers unless you want to build something for $1M. As far as already built new construction selling at retail, you don't have to spend $1M either unless thats what you want to spend.
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Gabe Soria
Member since 2022 · 9 posts · 7 votes
3y
Quote from @Todd Goedeke:

@Gabe Soria it does not cost a builder $1M to build in Ft Myers area a 5bed,4bath home. The cost to build is not the same as the listing price.

I meant $1m ARV. My apologies
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Gabe Soria
Member since 2022 · 9 posts · 7 votes
3y
Quote from @Bernard Joseph S.:

Quote from @Gabe Soria:

There is no one way to invest. Both have pros and cons just as short term rentals and long term rentals have pros and cons. When making a decision, study the market as much as possible and understand what you are capable of. One huge factor is what market you are buying or building in. In the Fort Myers area, new builds are starting at $1M, thus limiting the amount of people who can purchase the property. But if you flip a property with and ARV of 250k, the number of buyers who can purchase after the fact is much larger.

Clarify new builds. Are you talking buying preexisting new construction or building bottom up? I can assure you it cost nowhere near $1M to build in Fort Meyers unless you want to build something for $1M. As far as already built new construction selling at retail, you don't have to spend $1M either unless thats what you want to spend.

Building from the bottom up. And to clarify, New builds having a value of $1M, not the cost of construction.
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Brooklyn McCarty
Investor · Member since 2022 · 1k+ posts · 754 votes
3y
Depends on your timeline & budget.
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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
It all depends on the property and the location. In CA, it is most likely cheaper to remodel than build brand new. There are regulations that add up quickly and you don't get your money back (such as rain barrels, solar panels, etc.). You also have to factor in financing. Financing new construction is difficult if you don't have experience. Remodeling can be easier because there is perceived less risk.
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John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
3y
Remodeling is less stress for sure. Building can be profitable if you know what you're doing. I was looking at a commercial building in the fall with a builder and we were trying to understand how to flip it. After further analysis we had to walk away from the deal as the construction costs were too big for it to make any sense. The name of the game is to buy it right in the first place (cheap) to give yourself some cushion when the costs start to add up. Have you ever had a deal that was on budget?
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Gabe Soria did you mean builders can't build for less than $1m ARV, actual cash value? Hard to believe that 2bed, 2 bath homes ,1400 sq ft homes can t be built or are not being built for less than 400k.
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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, there is no one-size-fits-all approach that works better than the other. What works in one market may not work in another, and so it's important to consider the specific needs of the area you are investing in before deciding which strategy is right for you. Ultimately, success will depend on your individual techniques and experience, so make sure you have done your research and know what works best for your particular situation. Good luck!
[email protected]832-889-5607
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@John M.yes, be on budget, builders should have systems in place to guarantee it. Lock in labor costs by contract with subs. Lock in material costs with vendors.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Martin D.for reference purposes what are you using as the comparable cost per square foot for building vs buying? It’s possible to build a duplex for $100-$110 per sq ft. That includes wall coverings and floor coverings. I don t see any properties in N AZ at under $200/ sq ft.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
I was hanging out with @Martin D. looking at properties a few months ago. Getting a builder in the Sedona area is very difficult. It can take months.
Martin has to bring them in from Phoenix.
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Taylor DaschBusiness Member
Real Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
3y
It all depends on your goals. There is definitely a higher barrier to entry for building. But if you put two investors who each had a million dollars and the goal was a portfolio full of cash flowing properties, I think the buyer would do better than the builder with everything included ( capx, maintenance, etc.).
[email protected]254-718-4249
Taylor Dasch | EG Realty560 Reviews
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