When I started my own investing journey toward my Time Freedom Point I did a lot of research and watched a lot of HGTV. I quickly found residential real estate investing to be my calling and flipping was not something I wanted to do. Ergo, I developed an investing strategy working with high-quality turnkey providers like REI Nation, Spartan Invest, FREG, Apartmentsqca, and others. As my portfolio grew I started offering mentoring and coaching to people who read my postings on Bigger Pockets or found me on our website. That website describes the models under the name Ideal Wealth Grower.
The original strategy focused on investing in mainly single-family homes, sometimes duplexes, tri-plexus or four-plexus, financing 80/20 bank/individual down payment, and focusing on the performance of the property from day 1. We always aimed at 1% of the purchase price as monthly rent and generated good positive cash flow as soon as the property was rented and tenants got into a routine.
Now that we have seen interest rates more than double since this time a year ago, I am pivoting my investing towards a brand new SFR that is purpose build for long term and in some cases possibly short-term renting. Here are my reasons:
- The price gap between new build houses and fully renovated houses has evaporated almost completely (when comparing properties in the same location)
- New built houses are often in desirable locations attracting better tenants (payment culture)
- Tenants are willing to pay more to move into a brand new house supporting reasonable positive cash flow
- New built houses can get a builder warranty and don't require CAPEX and maintenance reserves for the first few years
- Newly built houses receive favorable financing conditions and are easier to refi when interest rates have come down again in 3-5 years.
- New built houses have a comparatively better appreciation opportunity than renovated properties, which can help develop a HELOC option for future investment in more favorable market conditions (lower interest rates and economic outlook)
- There will, most likely, be newly built houses that will come on the market in 2023, either directly from builders or banks or agents or TK-providers that were originally built for owner occupancy but buyers no longer qualify or cancel purchase agreements (this could be an interesting investment option that typically did not exist - has to be weighted versus furnishings that are made for tenants which owner occupants probably would not have requested)
- Rents have been lagging behind price appreciation. While inflation has been squeezing peoples wallets, a significant group f people who would like to own a house are potentially content with renting a house rather than staying in apartments or living with their parents. While it is another example of selection favoring the better-earning people, as investors it will offer a continued increase in rental income that benefits cash flow and help reaching the Time Freedom Point
- New built properties can remain in the portfolio for 2 or more generations and produce wealth and equity better than renovated properties that will have higher expenses as they get older and older (new built will age and need maintenance and CAPEX but they have a grace period of probably 5-7 years after completion)
These are my points to pivot to newly built properties. I probably forgot a few points but am very interested to learn what the BP community thinks about this approach. I am currently investing in two "new built properties" that should be completed in early 2023.
