There is a rising demand for rental homes in different markets around the country. More and more people are searching for a home to rent, and with the competition to buy existing homes very strong, some investors are looking into construction to fill the gap. Do you want to expand your rental property portfolio? You might also be considering building a home to rent as an option.
Depending on your market and building costs, it might make sense to build a home instead of purchasing an existing one. Here are some things you have to consider 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 can be more cost-effective to build a home to rent instead of buying one. It will be to your advantage if you already own a vacant lot, have a good relationship with a contractor, or else have the edge on a new construction project.
Local Market Demand
Even in a competitive market, building a home to rent may be more expensive than buying an existing home if you are a small to a midsize investor without such contacts. This holds particularly true in areas where the demand for new construction is very high. The high demand drives up prices so you will have to pay more per square foot than you would for an existing home.
Maintenance and Renovations
When you are comparing, make sure you include not only the cost of the property itself but also the amenities and extras that are important to you. New homes also do not automatically come with landscaping or appliances so you should also include the cost of these. But they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years. Given all the advantages and disadvantages, it is important to know what you will be getting for your money and consider all costs in your calculations.
On the other hand, buying an existing home also has added costs you need to consider, as well. You may need to renovate and repair older homes 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, you have to repair and replace them. These additional renovation costs should also be a consideration in your decision-making process.
Another key thing to keep in mind is the long-term potential for appreciation. It is easier to forecast value increases for existing homes since there are many comparable properties and an established rental history in the neighborhood. In comparison, new builds are often in newly established areas that may be harder to assess. It could take several years for your anticipated appreciation to happen depending on where the community is located. It would take time until the area is more established and home prices have been tracked over time. At the same time, there are also instances where a new area experiences sudden increases in home values due to market demand and other factors.
Ultimately, the decision to build a home to rent is solely yours. You will need good market data and a clear investment strategy to help you make the best decision. You may also want to get some expert advice from professional Southwest Waterfront property managers. If that is the case, reach out to Real Property Management Washington DC. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 202-813-9993.
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