New Construction: Build Quality & Appreciation?

Question

I am looking at some new construction properties in the Austin/Pflugerville/Round Rock area to house hack. I have mostly looked at DR Horton, and a little bit at KB Home. I am wondering:

1. What kind of appreciation can I get on a new construction (e.g. if I hold for 5-10 years)

2. How is the build quality? I've heard mixed thoughts on this, some companies apparently cut corners so the concept of little maintenance costs is not always the case.

-Are there any builders you WOULD recommend?

3. Do any of them not allow renting out extra rooms(aka house hacking)?

Neil Narayan · Answer

@Vik J.'s kind word spurred me to respond :)

1. What kind of appreciation can I get on a new construction (e.g. if I hold for 5-10 years)

NN> the avg for the last 10 years is 6.72%, my expectation for the next 10 yrs is that we will beat that. For new construction the trick is to get in at phase 1 for a multiphase dev and by the time they get to the late phase the same plan will be $20-30K more pushing the prices for the community up

2. How is the build quality? I've heard mixed thoughts on this, some companies apparently cut corners so the concept of little maintenance costs is not always the case.

NN> In my experience you can't say one builder is better than another since all the big ones hire subcontractors and the quality depends on who they get. KB in RR will have diff quality than KB in say pflugerville.

-Are there any builders you WOULD recommend?

NN> See above

3. Do any of them not allow renting out extra rooms(aka house hacking)?

NN> I don't know of any builder that can restrict house hacking

Nina Hayden · Answer

Lennar is decent in my opinion. And I know the builder industry....25 years experience, I was married to it once. Don’t listen to someone not in Texas.

Neil Narayan · Answer

@Kevin Chan it's not just Austin but any city that has almost high appreciation cannot have 0.8 or 1% RTV. Rents always lag home values. Austin appreciation has been 19% from Nov to Nov. A $2000 rental cannot jump in rent by $400 in 1 yr as no one will renew.

Steve R. · Answer

And another thing that you need to be aware of is that KB doesn't allow investors in lot of communities especially during the early phases. They allow it towards end of completion of the. Community when the prices have appreciated more than 10%.

So check with them first hand about investment property.

Nina Hayden · Answer

Renting a room shouldn’t be an issue.  Renting the house out may be because some HOAs do not allow STR or cap a percentage of it to be leased.  Just ask each sales person as you shop around.  While some builders build crappy product, at the end of the day the numbers over the years is what you need to be focused on the most.  Obviously after about 7-10 years you’re going to begin to look into things like the roof, fence, etc.  I’ve always treated all my investments as a 5-7 year hold, rinse and repeat.  Make sure you have an exit strategy.

Nina Hayden · Answer

Business is business. Listen to someone with 3 deals experience or someone that has dealt  with thousands of deals since 1998?  Just like my realtor, contractors, and management, I don’t hire anyone that’s not experienced in the market long enough to know how to handle them in the downturn or during a recession.

Neil Narayan · Answer

all homes. there is no data that i know of to that level. location is the most important thing. you can get a old house in a good location close to the city and it will appreciate better than a new construction in the outskirts of town.

Vik J. · Answer

Lennar is a bit rubbish, but other than that, most are decent enough.

Hard to answer what appreciation will look like in a decade: With Covid driving Californians and others from Silicon Valley to the silicon hills, you never know... Austin could be the 2030 San Francisco! There are several folks on this forum who can give you insights... @Neil Narayan is my personal hero  given his depth of knowledge about both Austin and real estate, I’d love to hear his take on this!

Matt Stricklen · Answer

This is not relevant to someone who is going to rent out rooms in his residence.

Steve R. · Answer

@Kevin Chan

Ha ha ya true. Market is getting real crazy out there. Bidding wars pushing the prices up like crazy

New Construction: Build Quality & Appreciation?

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