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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in Fall RiverThere 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. Building a home to rent is actually one way for you to expand your rental property portfolio.

Depending on the conditions in your particular market and the costs involved, building a home could make more sense instead of purchasing an existing one. Here are some things you need to know before you decide to build a rental.

Consider the Cost

Home prices and the cost of new construction vary widely from market to market. You need to know your local market well enough so you can determine the investment style and strategy that best fits your situation. In some places, it can be more cost-effective to build a home to rent instead of buying 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

Even in a competitive market, small to midsize investors without such contacts may find that building a home to rent may be more costly than buying an existing home. This is often true in areas where the demand for new construction is very high. Higher demand typically drives up prices, and you will end up paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you are comparing, be sure to include the cost of amenities and extras that are important to you in addition to the cost of the property itself. New homes also don’t always come with landscaping and other finishing touches, like appliances. 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 of the costs in your calculations.

On the other hand, there are additional costs to buying an existing home that should be considered 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. These things wear out so you will need to have them repaired or replaced. These added renovation costs should be included in your decision-making process.

Long-Term Appreciation

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 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, high market demand can cause a sudden increase in home values even in new areas.

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 Fall River property managers. If that is the case, reach out to Real Property Management Success. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 908-239-7579.

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.