In today's market, is it better to build vs buy?

Question

I'm curious to get people's opinions on whether it's better to build a house in today's market vs buy. We have been looking to add to our portfolio for several months, but have been unable to locate any deals that cashflow, given high prices and interest rates. We've still been keeping an eye open, but have also turned to a new idea: finding land and building on it (in turn adding our current residence to our portfolio). The trouble with this idea is actually locating land - it seems it is just as scarce as properties. Whether looking to build a new primary or even spec building, has anyone seen better results vs buying existing properties?

On a tangent, this has also turned my attention to potential minor subdivisions - buying a large piece of land and re-zoning it to put multiple properties on it. My grandpa actually did this in rural Missouri. However, in just scratching the surfaces, this looks to be highly complex, with lots of legalities involved and outside my novice knowledge & price range. I tend to think up big ideas, but then usually do not have the resources to act on them. It's been 2 years since we purchased our first rental property and we're itching to get more. We just wish the market would cooperate. Is anyone else experiencing this frustration?

Terrell Garren · Answer

After 20+ buy/rehab/rent SFHs 2008-2019, I found it difficult to make the #s work on new deals due to heated demand.  I made new SFH construction work by getting my GC and taking that cost out of the equation.  My last 4 adds have been new construction on tax sale lots.

Taylor L. · Answer

Land entitlement is a big business, largely due to all of the legalities involved and the complexity of getting raw land into a shovel-ready condition.

Something to bear in mind - big investors frequently do not have all of the money they need to do their deals. They work with investors & utilize other people's money. Look for ways to build off-market deal flow & build your network of investors, partners, and other sources of capital.

Simon Ashbaugh · Answer

Its definitely harder to make money building but that doesn't mean it cant be done. It kind of depends on your long term goals too.

Wesley Mullen · Answer

@Terrell Garren That's impressive and well done taking the initiative to get your GC. Did you have any prior background knowledge leading up to it? I certainly feel you on the hot market and difficulty in finding cashflowing properties these days. I feel like everyone has gotten into investing in revent years, which has driven competition off the charts. Combine that with the current market, it's very difficult to pursue properties without using creativity these days.

Wesley Mullen · Answer

@James Devoe We're looking in-state, in an actual pretty tight/specific location (like 15-20 mile radius), which makes it more difficult. It might just be not a valid option.

James Devoe · Answer

@Wesley Mullen

Where have you been looking for land?

My wife and I own an Interior/Architectural Design company and we've been looking into similar projects in and around Raleigh, NC.

I have found no trouble finding land for a good price in these areas through Zillow.

Have you been looking out of state or are you looking to stay close to home with your portfolio?

In today's market, is it better to build vs buy?

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