While the fix and flip can be a good, low-commitment strategy that is often as appealing to experienced investors as to first-timers, there are also good reasons to go with the more labor and capital- intensive route of financing new construction. Some of the pros include:
- Having a house that’s free of surprises — Every single detail of the house is built to your exact specifications, so there’s nothing hidden that you’ll discover too late after you’ve signed on the dotted line.
- No need to search — You don’t have to spend your time wandering around looking for a house with the right features for the local market (whether it needs to be 2200 square feet, or have three windows in the living room. Instead you can just draw up plans with these dimensions. Plus there are many elements to a house that are much harder to change after you’ve already built them (like square footage and number of windows), so it helps to be able to specify them the first time around.
- Energy efficiency — New homes can be built with cutting edge efficiencies that come from up-to-date insulation, solar panels, energy-saving windows, LED lighting, and other carbon footprint reducing technologies. Older homes rarely come with these, and it can be expensive to retrofit them. An energy-sustainable home can be a great perk to market to increasingly eco-conscious and cost-conscious buyers. You could spring for double flush toilets, smart thermostats, or even a green roof. “Biophilic” architecture is increasingly popular, especially in mixed-use or multifamily construction (meaning buildings incorporating nature into the design). A wall covered in plants, for instance, can be aesthetically attractive as well as lower the overall carbon footprint of the building.
- Security — Many builders offer warranties against future repairs, which will allow you to let your buyers know that they are covered against the risk of defect.
- Price—New construction projects tend to be pricier than older homes, although once the renovations are factored in this may not be the case.
- Experience Required—Investing in new construction projects should only be attempted by investors that already have some familiarity with architecture and building; otherwise it is too difficult for them to know what they are getting themselves into. Not all builders are equal, and it is necessary to vet them carefully. Investors should have their own understanding of the design, budget, materials, and workmanship, or it is easy for them to be overcharged by developers or end up with buildings of insufficient quality.
- Location—Land that is available for new development is often in areas where other new construction is also occurring, which may leave undesirable surroundings for a period of time. Such neighborhoods may be in development, which might mean they have fewer amenities like shops, restaurants, bars, or gyms. They might also have a less well-established social scene or school system, which can pose future risks to buyers. Such risks can require more careful analysis on the part of investors.
- No History—Previously owned houses have a previous track record, with a historical trend line of values. The value of a new home is a blank slate, and can be more difficult to assess.