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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in SpringThere is a high demand for rental homes in markets across the country. Too many people are going in search of a home to rent – with the competition to buy existing homes so strong –  several investors are looking for new construction to close the gap. If you are going in search of an effective way to expand your rental property portfolio, you might be asking if building a home to rent is the way forward.

Depending 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 numerous things you need to determine before ever selecting to build a rental.

Consider the Cost

Home prices and the cost of new construction diverge from market to market. So, it’s vital to ascertain your local market fairly well to distinguish which option makes logical sense for your investment style and strategy. In countless places, building a home to rent may be more cost-effective than buying one. This applies, in particular, 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 relates true in areas where the demand for new construction is fairly high. High demand tends to drive up prices, signifying you will tend to be paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you’re comparing, be certain you add not just the cost of the property itself but the amenities and extras that may be really important to you. New homes also don’t always include things like landscaping and other finishing touches, as for instance, appliances. However, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years.  With all the pros and cons, it’s essential to understand what you’ll get for your money and factor all costs into your calculations.

On the flip side, there are costs associated with buying an existing home that should be taken into consideration, additionally. Older homes may need some renovation and repair before you can lease them out. They may likewise have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things get older and more worn out, you’ll need to repair and replace them. These higher renovation costs should be taken into account in your decision-making process.

Long-Term Appreciation

Another vital thing to remember 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. Then again, new builds tend to be in recently established areas that may be harder to assess. Pending on where the community is located, your anticipated appreciation may be something of an unknown for several years up until the area is more established and you’ve had the chance to follow and track home prices over time. Still, there is constantly the eventuality that a new area will experience sudden increases in home values due to market demand and other factors.

Conclusively, the option of whether to build a home to rent is yours to make. You’ll need good market data and a clear investment strategy to support you to make the best prospective choice for your situation. You may furthermore require gettingsome expert advice from professional Spring property managers. In this case, reach out to Real Property Management Heritage. We can help guide you in taking your subsequent steps as a rental property investor with confidence. You can contact us online or call at 832-449-5263.

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