How brand new homes can be a great investment, long-term

[James Wachob]

After the 2009 real estate meltdown, may home builders and developers were unable to maintain their holdings and had to foreclose. The result was thousands of discounted homesites, now owned by the banks, flooded the market. I was able to swoop in and buy pieces of land (build-able lots) at discounted prices. 

An average 60'x125' lot that was originally selling for $60,000 was now able to be purchased for as low as $10,000. The best part about buying lots is that you only have to pay the taxes and cut the grass until you are ready to build.

Eight years later I was able to build this 1770 sq. ft. home that I've dubbed The Everest. This 4 bedroom 2.5 bath seems to be a winner with my tenants. 

I built this home in a mostly homeowner community and it blends in with the existing homes. The property rents for $1500 per month and cashflows very well. An added bonus is that this home is in a county only area, so I pay about 1/2 in taxes when compared to an area that is City & County taxes.

The other advantage to brand new homes as a rental is that the tenants love the idea of living in a brand new home! I can choose from several potential tenants vs. hoping to find a qualified renter. 

Most of the lots that I acquired were in suburb areas, just outside of Memphis. These areas offered better schools and lower crime rates. 

Although the included features are basic the homes are more energy efficient than older homes, simple due to the changes in building code updates, over the years.

The homes are mostly brick, the siding is made of HardiePlank, and the windows are double pane vinyl. This makes the exteriors nearly maintenance free.  

I have a local property management company, so this is easily the most passive investment I have found. Everything in the home from roof to appliances are less than one year old, so I do not expect to have many high dollar repairs in my future! 

The financing that is available is probably the most attractive part of the whole deal. The banks will loan the money to build, and once the home is complete I have one year to convert my construction loan into a permanent loan. The ARV was significant enough that I was out of pocket very little cash to own this home, even after paying closing cost, with a 30 year fix rate mortgage. This made my Cash-on-cash skyrocket and I only wish I could have afforded to by more discounted lots, when they were available.

James Wachob