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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in PlanoThere is definitely a high demand for rental homes in markets across the country. Multiple people are looking for a home to rent – with the competition to buy existing homes so strong –  quite a lot of investors are undertaking new construction to address the shortage. If you are looking for a productive way to expand your rental property portfolio, you might be seriously considering if building a home to rent is indeed the answer.

On the basis of the conditions in your chosen market and the costs involved, it might make sense to build instead of purchasing an existing home. There are a lot of things you need to ascertain just prior to determining to build a rental.

Consider the Cost

Home prices and the cost of new construction fluctuate and vary greatly from market to market. So, it’s relevant to actually understand your local market really well to have a clear picture of which option is the most sensible thing for your investment style and strategy. In several places, building a home to rent may be more cost-effective than buying one. This applies certainly 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 is especially true in areas where the demand for new construction is relatively high. High demand tends to drive up prices, which certainly means you will end up paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you’re comparing, make it a point you add in not just the cost of the property itself but the amenities and extras that may be vital to you. New homes also don’t always include things like landscaping and other finishing touches, the same with appliances. Notwithstanding, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years.  With all the gains and losses present, it’s necessary to perceive what you’ll get for your money and factor all costs into your calculations.

But then again, there are costs associated with buying an existing home that should be taken into consideration, likewise. Older homes may need some renovation and repair before you can lease them out. They may furthermore have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things become worn and eventually break down, you’ll need to repair and replace them. These higher renovation costs should be considered in your decision-making process.

Long-Term Appreciation

Another relevant thing to take into account 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. Still, new builds tend to be in recently established areas that may be harder to assess. Conditional on where the community is located, your anticipated appreciation may be something of an unknown for several years until after the area is more established and you’ve had a good time checking and tracking home prices over time. Having said that, there is continuously the likelihood that a new area will experience sudden increases in home values due to market demand and other factors.

In conclusion, the final choice of whether to build a home to rent is yours to make. You must have good market data and a clear investment strategy to enable you to make the best plausible decision for your situation. You may additionally yearn to get some expert advice from professional Plano property managers. In that event, reach out to Real Property Management Legend. We can absolutely help you take your next actionable steps as a rental property investor with confidence. You can contact us online or call at 214-227-2404.

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