Thoughts on buying new construction tax abatement properties?

Question

I see so many of these properties and they look okay at first glance. My problem with them mostly is im assuming the value of the property itself depreciates quite quickly especially on year 10 when you have to start paying taxes. Also im sure the cap rates are completely fudged to make the deal look better. Also not to mention many of them are just builders looking to capitalize on the tax incentives so it might be hard to tell the quality of the construction etc as a layman. The nice thing is if they live up to what they claim, I can hold them for low maintenance. I play on holding them for 40+ years as well and they will probably last that long compared to some of the already older Philly properties. Would love to hear thoughts.

John Harvey · Answer

@Andrew Giunta DM me to chat in more detail.  I agree generally though in staying away from new construction under amenitized pre-CO properties.  They want to be paid as if they’re fully leased.

Alex Uman · Answer

Personally I would stray away from new construction as an individual investor looking to purchase your first 5-10 single family rentals. Aside from the inability to add value, I've also heard the lower maintenance level tends to wear off rather quickly, especially once builder warranties expire. A few people I know have dealt with quite a bit of leaking and flooding in new construction homes they either own or are renting, especially in those that were built 3-5 years ago. Though, if you're simply looking to park money and cashflow off of it without adding any value, new construction can be a solid investment if you buy in the right area from the right builder.

Eric Greenberg · Answer

Hi Andrew,

Search on here as the topic has been discussed before. I would also do some research on local builder's via google/local Facebook groups/etc to get a sense of what you are working with.

Personally unless I actually knew the builder, I would stay very far away from new construction.  To me, taxes aren't high enough to justify a buying model around a tax abatement. Ill take a 100year old house over most new construction all day.