Would you buy a new build specifically as a rental property?

Question

I'm currently selling my primary residence (that I bought in 2011). So I'll be making a nice chunk of change & need to invest a portion of it into rentals.

Would you recommend buying new builds if my plan is to hang on to them long term? My mentality is that there will be less cap improvements / maintenance (hopefully) + there's no inventory in our market currently.

2nd part question - Do builders have an issue with purchasing as an investor rather than primary residence?

FYI: This isn't my first rental property, I've owned multiple. Also, "long term" would mean 15+ years (sell when my toddler graduates HS).

Let me know your thoughts!

Joseph Schweizer · Answer

Hi @Briette Awbrey!

I am not sure if you are looking for a specific area, but I know @Zach Lemaster has some new builds in Florida.

Best Wishes!

Dave Foster · Answer

@Briette Awbrey, whatever market you choose don't forget to talk to smaller builders in the area.  We've had clients with great luck buying builder lease backs for model homes.  The builder sells to you and leases back for a period of time they think it will take to build out their lots.  Upon end of the lease there's usually a clause that they restore it to "like new" condition.  You get their best build cause it's a show case for them.  You also get a built in tenant who won't call you for repairs.  And like everyone has said not having to budget for cap ex is a win win win.

Briette Awbrey · Answer

great idea @Theresa Harris... I'll add that to my list of questions to ask the builder.

Teri Feeney Styers · Answer

@Briette Awbrey I bank on investors buying my new builds - although I always create a product with two units. Maybe by visiting with locals in the REI you can find someone like me.

Nam Trang · Answer

Saying this is how ALL new homes is built is a stretch. You can find good new construction if you're willing to do your research. Just like any product, the bottom of the barrel spec homes that are churned out assembly line style are going to be lower quality than older non spec homes. Unfortunately, when the market tanked a lot of builder response was to build the cheapest homes possible to keep their prices reasonably low while keeping their actual margin high.

Adam Azam · Answer

@Briette Awbrey It is a numbers game.  There are areas that work and those that do not.  All things being equal a new house is less work and attracts a better Tennant.  It is unlikely you will get them at discount in this market.  I have been looking at purchasing land and hiring a small local contractor to build on in fill vacant land and rent or resell the property.

James Mcsweeney · Answer

Not sure about your area, but around here we are seeing that the new neighborhood's HOAs are having rules like "only 20% of homes at any given time can be occupied by tenants." So if an owner-occupant wants to move out and rent it they actually have to apply to the HOA to see if they're even allowed to rent their own house out.

In my experience working with investors, they tend to loathe HOAs. My guess is that's a huge part of why investors seek existing homes and older HOAs without rules like that.

My friend is president of his HOA and he's lived there about 15 years. Told me they just keep getting stricter and stricter and usually about stupid stuff like the color of front doors, or how early you're allowed to put garbage cans out.

Ali Boone · Answer

I think others have mostly answered it. Definitely check on the HOA for renting restrictions. But after that, it just comes down to the numbers. There are pros and cons for new construction vs existing properties. Existing properties have a proven track record (one way or another), and new construction doesn't. But then new const has the benefit of being... new. There's also a difference of whether the new const is in in-fill lots or a whole subdivision full of them in terms of the value it will hold along the way.

Ali Boone · Answer

Do those new builds in Atlanta cash flow? If so, I'd be interested in finding out more. I have a lot of investors who would be interested.

Theresa Harris · Answer

Avoid areas with HOAs.  Why not build a new rental?  I'd also check local rules to see if you can build one with an in law suite or basement unit, so you get two rentals.

Would you buy a new build specifically as a rental property?

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