Is Buying a New Build a Good Investment? 9 Pros and Cons of New Construction Homes

A new build can be an attractive alternative to a used home, especially if you’re wary of hidden issues and high maintenance costs, but is buying a new build a good investment in 2024? In this guide, we’ll dive into the pros and cons of new construction homes, several crucial tips for investors, and where to find new construction homes for sale!

Summary:

• A new construction home is a recently built property that investors can buy and rent out.

• Many new builds are now cheaper than existing homes due to a “lock-in effect” that keeps homeowners from selling.

• The pros of new builds include lower maintenance costs and insurance premiums, while the cons include higher taxes and HOA fees.

What Is a “New Build”?

A new build is any recently constructed home that has not been lived in. This includes new single-family homes, townhouses, duplexes, and multifamily buildings, as well as build-to-rent homes—properties that investors build for the purpose of renting out. These homes require less maintenance and command higher rents than many used homes.

New Build Homes Are Actually…Cheaper?

Typically, new homes are more expensive than existing homes, but in recent years, the opposite is true. Newly built homes are now cheaper than existing homes due to the “lock-in effect,” a phenomenon where many homeowners are unwilling to part with their lower interest rates and buyers can’t afford the recent surge in used home prices.

This means you can reap the benefits of a new roof, new furnace, new drywall, and other systems at a lower price point than that of used homes. As you can imagine, this trend is abnormal and won’t last forever, so you should take advantage of it while it lasts!

Browse new build turnkey rentals! 

Pros of New Construction Investment Properties

What makes a new build a good investment? There are several reasons to buy a new construction property over an existing home:

1. Low Repairs/Maintenance Costs

With old and existing homes, hidden defects, aging systems, and constant upkeep can quickly snowball into large expenses. By buying a new construction home with brand-new systems and appliances, you can keep maintenance and repair expenses to a minimum and hang on to more of your hard-earned cash flow. What’s more, most new construction builds are under warranty, requiring the builder to remedy any defects in workmanship.

2. Higher Rent Potential

Renters want to live in new, clean homes with modern floor plans, amenities, systems, and appliances. Investing in a new construction home will not only make it easier to find tenants for your property but also allow you to charge more for rent—both today and down the road.

3. Rate Buydown Options

Existing homes can be difficult to find in today’s housing market, with fewer homeowners selling and investors flocking to foreclosures. Conversely, there is a surplus of new construction homes, and many builders are eager to get this inventory off their books during slow buying periods (like right now). To sell more homes, builders will “buy down” your interest rate at closing, helping you get a lower mortgage payment while they sell off their inventory! 

Rent to Retirement has financing options where investors can buy new build-to-rent investments for as low as 0% down!

4. Lower Insurance Prices

Because new construction homes are built to modern-day code and have lower risk profiles, they are often much cheaper to insure. Shop around for the lowest rate and potentially save hundreds (or thousands) in cash flow each year!

5. Walk-In Equity

Many new homes are worth more at the time of closing than when you get under contract for one. Rent to Retirement offers new construction turnkey rentals at below-market prices, so you can get serious equity gains from the jump—up to 10% in some cases. For example, a $400,000 purchase could be worth $440,000 after you close!

6. Solid Resale Value

One of the perks of a new build is its potential appreciation and resale value. For one, your home’s systems and appliances may still be in good condition when it comes time to sell, allowing you to make a great return with very few home improvements (if any). But that’s not all—a new home’s value will continue to increase as the area around it is developed.

Cons of New Construction Investment Properties

While there are several reasons to go with a new build for your next investment property, there are also a few downsides to keep in mind:

1. Potentially Higher Property Taxes

A lender will estimate your property taxes when underwriting your new build, but you may see a tax spike after closing on the home. New builds may have higher property taxes than older homes, largely due to infrastructure being built and the land value adjusting to new development.

2. Long Timelines IF Building from Scratch

If you’re building a house from the ground up, be prepared for a significant wait time. New construction can take several months or longer, depending on the size and complexity of the home, the availability of materials, and any delays that are incurred. Thankfully, Rent to Retirement has newly built homes ready for purchase now. No need to wait!

3. HOA Fees

Many build-to-rent homes are constructed in communities where you are required to pay homeowners association (HOA) fees. These fees can be high, depending on the types of amenities the community provides. The silver lining is that these same amenities might allow you to charge more for rent!

Financing a New Build Investment

With any investment property, one of the largest barriers to entry is the amount of capital that is required upfront. It can take the average person a while to save up for a 20% - 25% down payment on an investment property. In other words, you might need five or six figures in your savings account every time you buy.

You can jump this hurdle and buy your dream new build sooner by taking advantage of Rent to Retirement’s low-money-down options. We can get you into a new build rental for as little as 0% - 5% down today!

Tips for Investing in New Build Rentals

Not all new builds are good investments. Make sure you get the most out of a new construction home with these crucial investing tips:

1. Calculate Your Cash Flow Before You Buy

Regardless of whether you’re looking at new builds or existing homes, you will want to measure the property’s cash flow to determine if it’s a worthwhile investment. Use our cash flow calculator to work out your cash flow in minutes!

2. Work with a Turnkey Provider

Take all of the legwork out of buying and renting out a new build by teaming up with a turnkey provider. Companies like Rent to Retirement can help you with financing, property management, and building an investing strategy!

3. Ask for a Lower Rate

Builders don’t want to be sitting on inventory and may be incentivized to get their homes sold, so ask for a rate buydown when shopping around. Rent to Retirement even offers lower rates on their build-to-rent investments!

4. Know the Neighborhood

Whether you’re buying a new build or a used home, its location affects your ability to manage your property and make a profit. A new house in the middle of nowhere won’t attract tenants, so buy new builds in the best cities and states to buy rental property!

New Builds Build Wealth!

Despite the occasional drawback, new builds offer a wide range of benefits for new investors who don’t want to deal with the headaches of low rent rates and constant upkeep. Take advantage of the discount on new builds in 2024 and add a brand-new home to your real estate portfolio today!

Is Buying a New Build a Good Investment FAQs

Is It Financially Better to Buy or Build a House?

Historically, existing homes have been more affordable than new builds, but this has flipped in recent years due to the shortage of existing homes for sale and the surplus of new inventory. Many new builds today are not only affordable but also deliver strong returns for investors.

Do New Construction Homes Have Good Resale Value?

Because new construction homes have new structures, systems, and appliances, they tend to hold (and even gain) value. Modern homes that are kept in good condition will attract more homebuyers and investors!

Are New Home Builds a Good Investment?

New home builds can be great investments, thanks to their low maintenance and repair costs, higher rents, and strong resale value. However, a new construction home isn’t the right choice for all investors. If higher property taxes and HOA fees are dealbreakers, you might consider buying another asset.