Building New VS. Buying for Short term rental investing

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Building New VS. Buying for Short term rental investing

Investor · KY · Member since 2022 · 204 posts · 77 votes

In my experience I have noticed there are a lot of upsides to buying land and building new (construction loan) VS. the traditional find a home and buy it with regards to the STR strategy. I would love to hear others thoughts on what upsides they see as to why a person would choose to build new vs. buy an established already built property for STR?

I understand some markets are great investor markets but provide very little inventory practically forcing an investor to build new in order to gain access to said market. I also understand the ability to "create" equity through the construction process much like flipping homes / BRRRR would do. Just wanting to hear everyone's thoughts!

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John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

I agree with Michael and Bruce.

Turn key would be the easy button.

A fixer upper would be your best option and save you the most money.

New construction is expensive, time consuming and stressful.

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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
2y
This gets posted fairly regularly @Zachary Cain Humphrey.

Overall, buying an existing home will usually yield better results quicker than starting from scratch.

You can get an existing home up and running quickly if you buy the right place.

If you start a new place, you have to deal with all the city/county will throw at you, inspectors, getting all the utilities in place, site prep etc.

In this environment and depending on where you build, it can take up to 2 years to get something done. That is a lot of cost carrying...

@Bruce Woodruff knows a ton about new building vs buying existing. Maybe he will chime in.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
2y
New construction nowadays is a PITA (generally speaking)......In my experience, buying an existing home is your best bet and a fixer-upper house is the best way to go. You will have more opportunity to add equity as you go. Buy in a neighborhood that is about to gentrify and you will have even more equity upgrades....
The only reason to do a new-build would be to get exactly what you want on your own personal home. It makes very little sense to do from a STR mindset....
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
2y
New construction is worth it if you have a lot of patience. Depending where it is it will likely take a year or more. The market that far out is hard to predict. I recommend buying existing as lead time is much less and you can renovate a lot quicker with less hoops than new construction. I have done dozens and dozens of rehabs as flips/LTR/STR and a handful of new builds including 1 nightmare right now. I would only consider ever doing new construction ever again if it were my primary residence, but that is just me.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
I agree with Michael and Bruce.
Turn key would be the easy button.
A fixer upper would be your best option and save you the most money.
New construction is expensive, time consuming and stressful.
3 Reply
Zachary Cain Humphrey
OP
Investor · KY · Member since 2022 · 204 posts · 77 votes
2y
Quote from @Bruce Woodruff:

New construction nowadays is a PITA (generally speaking)......In my experience, buying an existing home is your best bet and a fixer-upper house is the best way to go. You will have more opportunity to add equity as you go. Buy in a neighborhood that is about to gentrify and you will have even more equity upgrades....
The only reason to do a new-build would be to get exactly what you want on your own personal home. It makes very little sense to do from a STR mindset....

Great post! I have not heard of "gentrify" , I will have to research that a bit further. Would that be the same as opportunity zones?
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Zachary Cain Humphrey
OP
Investor · KY · Member since 2022 · 204 posts · 77 votes
2y
Quote from @Andrew Steffens:

New construction is worth it if you have a lot of patience. Depending where it is it will likely take a year or more. The market that far out is hard to predict. I recommend buying existing as lead time is much less and you can renovate a lot quicker with less hoops than new construction. I have done dozens and dozens of rehabs as flips/LTR/STR and a handful of new builds including 1 nightmare right now. I would only consider ever doing new construction ever again if it were my primary residence, but that is just me.

Our new construction at this time has been a really rough experience. Our carrying costs and contractors stealing has cost us thousands beyond what we anticipated. Great thoughts!
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Zachary Cain Humphrey
OP
Investor · KY · Member since 2022 · 204 posts · 77 votes
2y
Quote from @John Underwood:

I agree with Michael and Bruce.
Turn key would be the easy button.
A fixer upper would be your best option and save you the most money.
New construction is expensive, time consuming and stressful.

Looking at the best options to drive up value seems to be those fixer upper opportunities.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
2y
Quote from @Zachary Cain Humphrey:

Quote from @Bruce Woodruff:

New construction nowadays is a PITA (generally speaking)......In my experience, buying an existing home is your best bet and a fixer-upper house is the best way to go. You will have more opportunity to add equity as you go. Buy in a neighborhood that is about to gentrify and you will have even more equity upgrades....
The only reason to do a new-build would be to get exactly what you want on your own personal home. It makes very little sense to do from a STR mindset....

Great post! I have not heard of "gentrify" , I will have to research that a bit further. Would that be the same as opportunity zones?

No. Although it can have some negative connotations, ignore those, they are from the PC folks.
Basically it is when a poorer, older, run-down yet formerly charming neighborhood slowly transforms into an up-and-coming, hip area. Businesses flow in and people renovate the houses back to their former glory.
If you know what to look for you can get a triple equity boost - the fixer-upper return/basic appreciation/gentrification bonus....(you have to hold for a couple years)
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
2y
@Zachary Cain Humphrey you are correct, you can build far cheaper than buying overpriced current RE.
The cost savings far outweighs overspending and any time delays. Saving $50/sq ft on a 2500 sq ft home saves you $125k. Even if it took 6 months to build you will not make an extra $125k in those 6 months to make up the extra costs.
Be your own builder/ general contractor. Hire a project manager if you have no construction experience.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
2y
Quote from @Todd Goedeke:

@Zachary Cain Humphrey you are correct, you can build far cheaper than buying overpriced current RE.

Not in California or Arizona.....
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Zachary Cain Humphrey
OP
Investor · KY · Member since 2022 · 204 posts · 77 votes
2y
Quote from @Todd Goedeke:

@Zachary Cain Humphrey you are correct, you can build far cheaper than buying overpriced current RE.
The cost savings far outweighs overspending and any time delays. Saving $50/sq ft on a 2500 sq ft home saves you $125k. Even if it took 6 months to build you will not make an extra $125k in those 6 months to make up the extra costs.
Be your own builder/ general contractor. Hire a project manager if you have no construction experience.

That is exactly my point with new construction. There are way more savings in terms of what you can build vs what you can buy. For example my construction loan is for 280k. My pre build appraisal came back at 385k. Im confident I could sell the home at completion for 400K. This scenario would not be possible if I had not built new. However, the delays, contractor issues, etc have been awful and created one of the most stressful years of my life. But if you factor in what I made at my w2 job (im a travel nurse), our other current air bnb investments (2 rental arbitrage units), and the tentative gains from this new construction Ive made near 300K this year and thats 65-75% more than I made last year which blows my mind. However it did come at a cost
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