When purchasing single-family rental properties, deciding on a recently built home presents both advantages and disadvantages. Newer properties offer perks like more customization, better energy efficiency, and less maintenance in the initial years, though these benefits often come with higher upfront costs. This is usually due to the cost of upgrades, which are not cheap, and the limited ability to negotiate on price. No matter which property you choose, it’s crucial to weigh all the pros and cons carefully to ensure you get a solid return on your investment.
Investing in New Construction Rental Properties Can Be a Smart Move
In many cases, purchasing a new property to utilize as a rental can be a promising investment. From a financial perspective, new construction offers investors the chance to buy and immediately rent out a clean, attractive rental home with a variety of appealing upgrades. Since the upgrades are already included in the purchase price, you’ll have minimal repair or improvement costs when getting the property ready for your first tenant.
If the new home is ready for move-in, rental income can start flowing right away. The various upgrades included in the price of a new home also allow investors to customize the rental home to appeal to a particular renter demographic. For instance, a new home equipped with smart technologies will likely attract a Millennial renter more than one that lacks these features.
Benefits of Modern, Energy-Efficient Properties
Tenant appeal is crucial for creating a successful rental property, and new homes offer something unique: the opportunity to be the first and only tenant to have lived in the house. In addition, new properties offer renters significant utility savings, as they are typically more energy efficient than older homes. These characteristics may particularly appeal to renters looking to stay long-term, who are attracted by the prospect of living in a modern, low-maintenance, energy-efficient home for many years.
While there are many good reasons to invest in a new home as your next rental property, there are several drawbacks to be aware of as well. For example, not all builders deliver the same quality, and some may try to cut corners by using cheap materials to save costs. Poor construction could result in constant negotiations with the builder to fix problems or higher repair and maintenance expenses if they are left unaddressed.
Another downside is the limited customization options often available. While customization is possible to an extent, it generally means choosing from a narrow range of finishes and styles, and expanding beyond these may increase the overall purchase price.
Is New Construction Right for Your Investment?
For investors looking for a bargain, buying a new home may not always be the best choice. The price of new construction is often determined by the builder rather than the market or a previous owner, which can limit room for negotiation.
When buying from a builder, negotiations are often minimal because lowering the base prices affects comparable property data in the neighborhood, potentially influencing future buyers to request similar discounts. However, circumstances vary, so it’s always worth asking about available discounts or other financial incentives.
It’s critical to consider all the pros and cons before deciding to buy a new home as a rental property. With many factors at play, determining whether a new property is the right investment for your market and demographics can be a complex decision.
You need detailed market information, like the kind offered to all Burlingame property owners working with Real Property Management Bay Area. We perform market assessments for all potential rental properties, ensuring owners who partner with us have the tools and information they need to make the best investment decisions. For more information, contact us online or at 650-696-1800.
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