There is a high demand for rental homes in markets across the country. Countless people are looking for a home to rent – with the competition to buy existing homes so strong – various investors are falling back on new construction to address deficiencies and fill in the gap in the market. If you are in search of a method to expand your rental property portfolio, you might be thinking of building a home to rent.
Depending on the conditions in your chosen market and the costs involved, it might make sense to build instead of purchasing an existing home. There are some things you need to learn before you ever decide to build a rental.
Consider the Cost
Home prices and the cost of new construction definitely differ much from market to market. So, it’s necessary to understand your local market pretty well to realize which option makes better sense for your investment style and strategy. In many places, building a home to rent may be more cost-effective than buying one. This is all the more true if you already own a vacant lot, have a good relationship with a contractor, or otherwise have the edge on a new construction project.
Local Market Demand
For small to midsize investors without such contacts, building a home to rent may not cost less than buying an existing home – even in a competitive market. This correctly applies particularly in areas where the demand for new construction is significantly high. High demand tends to drive up prices, which actually means you will end up paying more per square foot than you would for an existing home.
Maintenance and Renovations
As you’re comparing, always remember to take in not just the cost of the property itself but the amenities and extras that may be essential to you. New homes also don’t always include things like landscaping and other finishing touches, particularly appliances. But really, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years. With all the benefits and disadvantages, it’s imperative to ascertain what you’ll get for your money and factor all costs into your calculations.
Then again, there are costs associated with buying an existing home that should be taken into consideration, furthermore. Older homes may need some renovation and repair before you can lease them out. They may moreover have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things become older and weaken, you’ll need to repair and replace them. These higher renovation costs should be added and accounted for in your decision-making process.
Long-Term Appreciation
Another necessary thing to make sure of is the long-term potential for appreciation. Value increases for existing homes tend to be easier to gauge since there are a lot of comparable properties and an established rental history in the neighborhood. On the flip side, new builds tend to be in recently established areas that may be harder to assess. Depending greatly on where the community is located, your anticipated appreciation may be something of an unknown for several years up till the area is more established and you’ve had plenty of chances to track home prices over time. Then again, there is always the certain possibility that a new area will experience sudden increases in home values due to market demand and other factors.
Lastly, the discretion of whether to build a home to rent is yours to make. You just really need to have good market data and a clear investment strategy to certainly help you to make the best likely choice for your situation. You may likewise ask to get some expert advice from professional Logan property managers. If such is the case, reach out to Real Property Management Cache Valley. We can help you take your succeeding steps as a rental property investor with confidence. You can contact us online or call at 435-753-5200.
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