Advantages of Builder Financing Credit in New Construction for SFR In North Texas

[Kris Kraatz]

Hello Bigger Pockets Community,

In the current landscape, I want to highlight a significant opportunity that's catching the attention of many seasoned investors buying properties in the North Texas region: buying new construction with national home builders using Builder Financing Credit (BFC). This unique financing mechanism offers advantages that can have profound implications for your investment strategies.

What Is Builder Financing Credit (BFC)?

BFC is a unique financial tool, often but not always provided by new home builders' preferred or in-house lenders. It allows investors to negotiate closing costs and secure a fixed 30-year rate around 5.875%. This is a notable advantage, as the market rate without BFC stands closer to 7.25%. Please note that the rates quoted are roughly reflective of today's going rates and may vary. Furthermore, this discounted rate doesn't impact seller concessions since it's established before the client initiates the transaction.

Why Consider BFC?

Investors should explore BFC in the North Texas market as a spend-to-cash-flow move, considering the following advantages:

1. Significant Savings on Interest: With a 30-year fixed rate at 5.875% instead of the market rate of 7.25%, the interest savings over the life of the loan can be substantial.

2. Reduced Capital Expenditures: Investing in a new home with BFC offers a unique opportunity. Thanks to the builder warranties that come with new construction, the expected capital expenditures over the next decade may be greatly reduced, and in some cases, potentially non-existent. This is not only a reflection of the quality and reliability of new construction but also a strategic move that allows investors to focus more on price appreciation as a primary play in the North Texas market. Leveraging BFC in this way aligns with a long-term investment strategy that capitalizes on both reduced maintenance costs and the region's potential for growth.

3. Potential for Appreciation: The region holds potential price appreciation, providing another profit avenue.

The Strategy

Investors looking to make moves in single-family residences (SFR) should:

1. Time the Entry:** Timing the entry into a new community is key.

2. Consider Lot Position and Saturation Levels:** Maximize return on investment by making informed selections.

3. 35% Down Payment:** Utilize the benefits that BFC offers by making a significant down payment.

The Bottom Line

Investing in new construction using BFC isn't just about buying a home; it's about strategically leveraging a financial instrument to secure interest rates well below market levels, tapping into unique opportunities in the local landscape, and generating strong returns. If rates go down in the future, this could unlock pent-up demand for single-family residences (SFR) in North Texas, driving prices up. Conversely, if rates do not come down in the long term, securing a lower rate through BFC today could prove to be a significant win for investors. Either scenario illustrates the importance and potential benefits of considering BFC in today's market.

If you've used BFC or are intrigued by this approach, I'd love to hear your thoughts, experiences, or questions. This could be a game-changing strategy for those looking to expand their SFR portfolios in today's market.

Best,

Kris Kraatz

[Lucia Rushton]

@Kris Kraatz how do you navigate the newer HOAs that have limitations/ restrictions on rentals ?