New construction as first investment

[Erika Lessard]

Hello.  I've originally thought that once I could get some capital to buy, that I should house hack in Missoula (MT.); we have a paid off home about 35 minutes outside of there.  I'm tired of commuting to work in the Winter particularly so this just seemed a good place to begin my investing journey.  However, I'm currently doing a travel job 6.5 hours away in Walla Walla, WA where my mother lives.  She has Alzheimer's so it's tempting to think of getting a buy and hold that I can stay in when I come to town and later just fully rent out.   The prices and inventory are better in Walla Walla than in Missoula as well.  Just looking for some thoughts on this one and particularly wondering if new construction is a wise first investment.  Seems it would be in that I won't the maintenance issues of an older home and it should not be hard to rent out later (once my momma is no longer around.)  I know this is kind of a brief post and I hope I'm making some sense.  I do intend to stay in Montana as my full-time home.  I don't know if I bought a home in Washington if it would then be difficult to later house hack in Missoula.  I appreciate anyone willing to share some wisdom.

[Leo R.]

@Erika Lessard

One of the biggest misconceptions by inexperienced investors is that new houses are inherently less costly to maintain than older houses. This is true some times, but in some scenarios, brand new properties end up producing significantly MORE maintenance/repair headaches than older properties.

The reasons are:

1) Some building techniques/materials are far superior to those used in the past, but some are not, and some are unproven. For instance, I'm very doubtful that pex will have a longer service life than copper plumbing. The trend toward flat roofs is just silly in most areas (bc it causes water diversion problems, which then cause a myriad of other problems). Etc.

2) A new house hasn't gone through its "growing pains" phase. All sorts of problems can emerge in the first few years. For instance, inadequate/improperly designed water diversion systems can cause major problems (e.g.; rot, masonry degradation, foundation settling) that won't emerge for several years. I personally know people who bought brand new, multi-million dollar, beautiful luxury homes, only to have serious foundation settling over the first 5-10 years of ownership (and the repair bill was in the hundreds of thousands!).

On the other hand, an older house has been around so long that these types of problems have either been addressed by previous owners, or they're often plainly visible. For instance, if there's an unresolved settling issue, you can probably see cracks in the foundation, buckling, un-level floors, un-plumb doors, etc. ...but, if everything is solid now on an old house, it'll probably remain pretty solid for the foreseeable future. As my GC says: "if it's stood straight and true for the last 100 years, it'll probably make it at least another 25".

Don't get me wrong; there are plenty of issues/problems/quirks that old houses have that new houses don't, and an old house can obviously have hidden problems and big repair/maintenance bills too...but, the point is: a brand new house is not a foolproof solution to repairs/maintenance (and in some cases, a brand new house can be a much bigger gamble than an older house).

This is a particularly important lesson for inexperienced investors, who tend to be the most prone to "shiny object syndrome" (the tendency to let nice aesthetics distract from real, underlying issues). There are no shortage of lipsticked pig properties out there, and learning to spot them is essential for successful RE investing...we're all susceptible to "shiny object syndrome", but being aware of it is the first step to avoiding it!

Good luck out there!