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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in McKinneyThere is a high demand for rental homes in markets across the country. A whole lot of people are seeking for a home to rent – with the competition to buy existing homes so strong –  the majority of investors are definitely turning to new construction to address the gap. If you are seeking an effective way to expand your rental property portfolio, you might be seriously wondering if building a home to rent is the answer.

Conditional on the conditions in your chosen market and the costs involved, it might make sense to build instead of purchasing an existing home. There are various things you need to understand just before deciding to build a rental.

Consider the Cost

Home prices and the cost of new construction can be extensively different from market to market. So, it’s significant to know your local market quite well to recognize which option makes as much sense for your investment style and strategy. In numerous places, building a home to rent may be more cost-effective than buying one. This is particularly true if you already own a vacant lot, have a good relationship with a contractor, or otherwise have the edge on a new construction project.

Local Market Demand

For small to midsize investors without such contacts, building a home to rent may not cost less than buying an existing home – even in a competitive market. This applies especially in areas where the demand for new construction is pretty high. High demand tends to drive up prices, denoting you may wind up paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you’re comparing, make certain you consider not just the cost of the property itself but the amenities and extras that may be necessary to you. New homes also don’t always include things like landscaping and other finishing touches, such as appliances. Nevertheless, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years.  With all the positives and negatives, it’s vital to find out what you’ll get for your money and factor all costs into your calculations.

Still, there are costs associated with buying an existing home that should be taken into consideration, moreover. Older homes may need some renovation and repair before you can lease them out. They may as well have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things become worn out and usually break, you’ll need to repair and replace them. These higher renovation costs should be accounted for in your decision-making process.

Long-Term Appreciation

Another significant thing to take into consideration is the long-term potential for appreciation. Value increases for existing homes tend to be easier to gauge since there are a lot of comparable properties and an established rental history in the neighborhood. But then again, new builds tend to be in recently established areas that may be harder to assess. On the basis of where the community is located, your anticipated appreciation may be something of an unknown for several years until the area is more established and you’ve had a chance to fully trace home prices over time. At any rate, there is always the probability that a new area will experience sudden increases in home values due to market demand and other factors.

In the end, the final choice of whether to actually build a home to rent is yours to make. You ought to have good market data and a clear investment strategy to effectively help you make the best conceivable decision for your situation. You may also want to get some expert advice from professional McKinney property managers. If that is so, reach out to Real Property Management One Source. We can help you efficiently take the next steps as a rental property investor with confidence. You can contact us online or call at 214-960-1612.

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