Why investors don't like New Construction?

Question

I'm thinking about purchasing one in FLL area however I know investors usually shy away from New Construction, is there anything I need to beware of?

Sarah Kensinger · Answer

For us, we don't do new construction because It's hard to add value right away.

John Underwood · Answer

New construction is more expensive that it was a few years ago.

There is the timeline and stress.

Any existing house you can have inspected and walk away if there are problems.

An existing house you can be up and running making money much sooner.

Stuart Udis · Answer

Don't assume because the building is new construction, there will be less maintenance. There are a lot of poorly constructed buildings and in most cases the builder warranties are as valuable as the paper they are written on. It's important to vet the builder just as much as the building. I've also seen instances where builder warranties only apply to owner occupants meaning they are void if leased. Often times the warranty, if offered is not provided until settlement or shortly beforehand so make sure you understand what you are getting during the diligence period. I frequently see buyers place less emphasis on diligence when they are purchasing new construction.  There's no reason to make assumptions. Go through your process just as you would in any transaction.

Jon Martin · Answer

This. To expand on this for the OP, new construction typically has a single great room that combines the living/family, dining room and kitchen, therefore not a lot of space to add new bedrooms. Whereas mid/late century homes often had a family room, living room, formal dining room etc and in some cases very generous dimensions. Much easier to create new bedrooms out of existing floor space with old construction, which is especially important for STR. Also tend to be on larger lots closer to amenities, while new construction tends to be further out and on smaller lots.

Lately I have seen some nice new homes built within existing neighborhoods that has more bedrooms and bonus spaces, however they are priced accordingly and tend to be significantly higher than the value of the surrounding homes.

Bruce Woodruff · Answer

New construction is considered to be more expensive (and usually is) but there are exceptions everywhere. If you're a Contractor or want to go 'Owner/Builder' it can be a smart move. Buying existing is just easier and there are a lot more choices..

Alan F. · Answer

Many investors like new construction, many builders, contractors and developers like new construction. Its 1 of many ways to be a real estate investor.

What to look out for? Lots, whole books have been written, if you use the search function here on BP you'll see tons of information. Its alot easier for us to answer your specific questions than teach you everything.

Andrew Steffens · Answer

Depends on the investor, some investors only buy new construction.  If you buy turnkey from a builder it is usually at a premium.  If you do the whole process yourself, it is a lot of work for the same equity stake as a 45 day rehab.  Case by case but usually it is more work for less return.

Henry Lazerow · Answer

Because its usually not going to cashflow. With todays rates/prices you really need find great deals and create equity through rehab to make the numbers work.

Michael Baum · Answer

Everyone has said it best IMHO.

If you can make a good deal work on new construction, then go for it.

I would look at new construction but in the end it all comes down to $$$.

Christian Ehlers · Answer

Most investors want a better return than what new construction offers as you can't do a value add rehab to gain any equity or increase cashflow, it seems to be a much more long term strategy where you need to hold onto it awhile to get any return.

You will also be buying at a premium, and the area's that have cheap new construction that cashflows are often (not always) in cheaper markets where appreciation will be lower because they can just keep building more inventory.

Why investors don't like New Construction?

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