The demand for rental homes in various markets across the country is very high. Given that there are many looking for a home to rent, the competition to buy existing homes is so strong that some investors are turning to new construction to fill the gap. Building a home to rent is actually one way for you to expand your rental property portfolio.
If the conditions in your chosen market and the costs involved are favorable, it might make sense to build instead of purchasing an existing home. There are a number of things you have to know before deciding to build a rental.
Consider the Cost
Home prices and the cost of new construction vary widely from market to market. So you have to know your local market well enough to determine which investment strategy will make the most sense. In some places, it may be more cost-effective to build a home to rent rather than buy one. This can be a good option for you if you already own a vacant lot, have a good relationship with a contractor, or have the edge on a new construction project.
Local Market Demand
Small to midsize investors might find that building a home to rent may not cost less than buying one– even in a competitive market. This is often true in areas where the demand for new construction is very high. With the high demand driving up prices, you will have to pay more per square foot than you would for an existing home.
Maintenance and Renovations
As you are comparing, make sure you also include the cost of the amenities and important extras on top of the cost of the property itself. New homes often do not include things like landscaping and appliances. But they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years. Take all the pros and cons into consideration so you will know what you’ll get for your money after you factor all costs into your computations.
On the other hand, there are also additional costs associated with buying an existing home that you should factor in, as well. Older homes usually need to be renovated and repaired before you can lease them out. They may also have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. Since these things wear out, repairing and replacing them is a must. These renovation costs should also be considered in your decision-making process.
Long-Term Appreciation
Another key thing to keep in mind is the long-term potential for appreciation. It is usually easier to track value increases for existing homes since there are many comparable properties and established rental history in the neighborhood. On the other hand, new builds are usually in recently established areas that may be harder to assess. Depending on where the community is located, property appreciation may be something you will have to wait for several years for until the area, and even the price trend, is more established. At the same time, it is also possible for a new area to experience sudden increases in home values due to market demand and other factors.
In the end, you will have the final say on whether to build a home to rent or not. With good market data and a clear investment strategy, you can make the best decision for your situation. You may also want to get some expert advice from professional Jacksonville property managers. If that is the case, reach out to Real Property Management Hometown. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 501-701-4702 or 501-303-6870.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
