Are New Construction Homes A Good Investment

BONUS MATERIAL: 7 New Construction Tips

When it comes to buying a first home or a next home it's hard to separate the home from the investment. As real estate agents for 40 years now, we often get the question, "Are new construction homes a good investment?" This question is getting asked even more often now.

The things that make new construction homes a good investment; you have the latest and best materials and most up to date on building codes. Less maintenance costs because you'll have brand new everything and warranties if anything goes wrong. And you can save money by not adding things that don't matter to you and upgrade the things that are important.

Building a new construction home is an exciting prospect

Building a new construction home is an exciting prospect. For some it can be a dream experience, for others a nightmare. It comes down to your wants and expectations. You are the one who will live there so you are the only person who will know what you are capable of.

While building a new construction home is an exciting prospect, it's also a big investment.

Are New Construction Homes A Good Investment?

If you're looking at investing in new construction solely a real estate investor, than you'll find new construction an easy decision. You'll still need to be smart about upgrades and floor plans, but with the right financing, neighborhood, a brand new home can be a good investment.

If you're looking at new construction as your primary home and still wanting fast appreciation and equity there are a few things to consider.

New Construction, Good Investment

Types Of New Home Construction

There are different types of new construction:

Speculative construction or Spec built is when a builder constructs a number of homes with the intent to sell them as soon as possible after they are completed.

Custom construction is when the buyer works with the builder to design their own home. The buyer is picking everything out from the floor plan to the flooring material. The type of insulation to the type of roofing material.

Pros and cons of custom construction

The pros of custom construction is that you can get everything exactly the way you want it.

The cons of custom construction is that it can be more expensive and it takes longer to build.

Then there are some builder's doing things in between. You might be able to pick out some materials or do certain upgrades. But it won't be custom. You'll only be giving options; ie Package A or Package B. Choices and customization has greatly decreased over the last few years as the real estate market has gotten hotter. 

  • The builders don’t need to offer the upgrades and customization because it’s a seller’s market. 
  • It’s time intensive to give the choices and coordinate the upgrades, slowing down the process. 
  • Home buyers are just not as picky, and budgets are limited. 

Fix and Flip is not new construction but when an investor buys an existing home and updates many areas of the home.

Conversion is also not new construction but when an investor takes an existing apartment building, upgrades or enhances the property and turns the building into condo units to sell off individually.

Custom Construction Homes, new construction

Do new construction homes appreciate faster?

Generally speaking, new construction homes do tend to appreciate faster than older homes. This is because they are newer and typically of higher quality, both in terms of materials and construction. They are also often in nicer neighborhoods and/or are upcoming neighborhoods.

However, there are always exceptions. For example, if you are buying a brand new home in a down market, it may not appreciate as quickly as an older home in a more thriving market. Or, if you are buying a custom-built home that is very expensive, it may not appreciate as much as a mass-produced home in a lower-priced  neighborhood.

Old and New Home

New homes are a better investment than buying an existing home that has potential structural problems, bad updates inside and out and appliances, water heaters and furnaces that need to be replaced. Re-sale values can be higher if there popular amenities  and updates like granite or quartz countertops, stainless steel appliances and more. But you're still dealing with the age of the home, possibly replacing a roof and other costly repairs.

A new construction home can appreciate faster in a rising, seller's market, especially if you buy early or in the early phases.

Many home builders don't release properties, or list the homes for sale until they are almost completely finished or fully move in ready.  This way the builder is always selling the home at the most current market value.

This can benefit early movers in a new construction neighborhood. As the builder raises prices, as the market increases and the neighborhood becomes more established, buying that new construction property looked like a brilliant idea.

Are new construction homes more expensive than resale existing homes

The upfront cost of buying a new house could be more than buying a resale. But as we've discussed already in this article, in the long run having a more worry-free, maintenance free home could end up saving you money. Plus the newer, better materials and having a more energy efficient home can add to the cost savings.

House upgrade and renovationsWhere buying a newly built home can go off the rails very quickly is adding every option and taking every upgrade. If you selected a less expensive floor plan but over upgraded your home and now made it as expensive as the next level up floor plan you'll have a difficult time getting your money back out of it.

Over upgrades and too much customization can impact whether or not the new home truly is a good investment. 

Buying or building a house

When it comes to deciding to buy an existing home or building a house it's going to come down to personal preference.

For example, if you're looking for a specific architectural style of home, or a certain older home character, you'll most likely end up looking for resale.

And that also goes for buying in a certain location, area or neighborhood. Most new construction single family homes are located further out of downtowns or even major cities. Developers have turn to smaller towns, not just suburbs to find enough land and at a good enough value to build their new construction neighborhoods. This could be a drawback with longer commute times and potentially less convenience.

However, some of this can be changing now and we're already seeing it happen. As more people are working from home, convenience to the office and worry about a long commute isn't as much of a concern. And as areas in further out from downtowns areas become more populated, more businesses, restaurants, coffee shops and things to do are following the population growth out to the newer communities.

How to buy a new construction home

1. Find a real estate agent that knows new construction

New Construction Real Estate Agent

We'll talk more about this below of why you should have you're own real estate agent for new construction and not just use the builder or their agents.

But beyond just finding your own agent to help with the buying process you'll want one that has experience with a new construction purchase. That process will be different than buying an existing home and even some of the paperwork and contract differs.

2. Identify what's important to you

Is who the builder is the most important thing? The location or community? Or the floor plan?

3. What's available

You and your new construction specialist real estate agent can get started talking with the builder and finding out what's available or release dates of upcoming inventory.

4. What's included

Start to discover what's included, the amenities, features, new appliances, window coverings , fences, if upgrades are available and the costs. See what warranties are offered and what they cover. Are there special financing offers from the builder or the builder's mortgage lender?

amenities, features, new appliances, upgrades

5. Offers and contracts

This could be dependent on the real estate market and/or the builder's preferred process. Also if you're buying a Spec home, basically existing homes and it's Move in Ready versus a home that you can customize or make some personal selections and upgrades to. 

Is now a good time to build a house, buy new construction

Is now a good time to build a house, buy new construction

In the current real estate market, it's hard to be too picky. You want to get in where you fit in. If you can buy a new home, either as a first home or your next home, we'd say go for it.

There are more benefits of buying a new construction home than just having everything shiny and new.

  • It could be easier on your timeline
  • More time to plan and prepare
  • Community and amenities

Do I need a REALTOR® for new construction

Site agent, new constructionYou don't need your own REALTOR® if you're looking at new construction homes. Many home builders are going to have what is called a "site agent." But keep in mind the site agent is working for the builder. They can help you with the process and should know the inventory very well. But how helpful will they be with pointing out the drawbacks or helping you assess the pros and cons?

When you have you're own real estate agent representing you in the purchase, preferably one that is familiar with buying new construction homes, understands the contract and how to negotiate with builders on what they will and typically won't do to bring a deal together. 

They are also there to help protect buyers and their interests in making sure you are getting what you are paying for, including the best terms and warranty coverage.

BONUS MATERIAL: Get Our Free Cheat Sheet - 7 New Construction Tips;

Investing In New Construction For Rentals

Are you thinking of buying a new construction for a rental, for pure real estate investment play? If so, you're on the right track. There are a lot of benefits to owning newly built rental homes, from the stability and predictability of cash flow to the tax advantages.

The biggest mistake a real estate investor can make when investing in new construction is over upgrading and customizing to a specific taste.

These things can impact the cash flow every month and the overall ROI.Investing new construction affects cash flow and roi

Our Personal Experience With Investing In New Construction

Besides helping a number of home buyers purchase new construction homes we have bought a few ourselves.

Katherine's first purchase is when she bought a condo that was brand new condo conversion.

We have since bought 3 new construction homes since then and have owner occupied and used as rentals. They've been great as rentals and the tenants enjoy having new construction, more modern features, being more energy efficient saves them on monthly bills. And less maintenance saves us money as investors.

4 Reasons why investors should like new construction homes

  1. Stability of purchase price
  2. Less maintenance costs
  3. Potential for increase in value over time
  4. Newer appliances, newer windows, better insulation etc , lower utility costs (tenants like these things)

Houses for sale under construction

To find homes that are under construction, simply do a search for "new construction homes for sale" on your favorite real estate website. You'll then see a list of all the new homes that are currently being built in your area. From there, you can click on each individual listing to learn more about the property.

why investors should like new construction homes

For example, here you can see new construction homes for sale in King or Snohomish County

And here you can see new construction homes in North Idaho

And specifically new construction homes in Coeur d'Alene and new construction homes in Post Falls.

The best thing you can do to find and buy a new construction home is ask your REALTOR® to get you on the waiting list of the builders and neighborhoods you're most interested in.

Conclusion

If you are looking for a new home, there are many reasons to consider buying one that is new construction. New homes are not necessary any more expensive than resales, unless you choose to add upgrades or special features. You can also select from a wide variety of floor plans, colors, finishes and features not available in existing properties which may be perfect for your family's needs. Plus, by purchasing an unfinished home in some cases you are able to customize it with your own personal touches before moving in!

PersingerGroup.com makes buying and selling your home easier. You don't work with a showing agent, buying agent, transaction coordinator or team admin. You work directly with us. One agent from beginning to end.  Katherine and Darin have been in the real estate industry for a combined 39 years. They have seen the real estate market ups and downs and even though no real estate transaction is the same, they've been involved in many interesting scenarios. Contact us today to see how we can help!

 

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