Should Investors Consider a New Construction Home?

When discussing real estate investments, the typical image that comes to mind is a 'fixer-upper.' It's uncommon for investors to consider purchasing new construction homes as additions to their portfolios.

However, this investment approach could be a savvy financial move, generating substantial returns when executed appropriately.

The advantages, such as state-of-the-art designs, advanced features, and potentially higher value appreciation, are plentiful. However, like any investment, it comes with its set of considerations to ponder before getting started.

Whether you're a seasoned veteran or a newcomer, understanding the pros and cons of investing in new construction homes will aid you in making a reasonable decision.

Pros of Investing in New Construction Homes

First, new construction homes often have the potential for quick value appreciation. According to a Federal Housing Finance Agency (FHFA) report, new properties are appreciated faster than older ones.

For instance, a new build with its modern open-plan design upgraded smart home technology, and top-of-the-line kitchen appliances might see its value increase by as much as 5-7% per year, compared to a 3-5% appreciation for older homes.

This rapid value appreciation could lead to a hefty return on investment for future-focused buyers planning to hold for a while.

Finding renters can often be easier for new construction homes. Many families waiting to get into their new build are often interested in renting in the neighborhood ahead of time.

Additionally, modern features and amenities are highly attractive to renters and are not usually matched by older construction. Less vacancy means a better return.

Moreover, new construction homes offer an unmatched level of customization. Imagine being able to choose the type of hardwood for your floors, the style of your kitchen cabinets, or even the layout of your master suite.

Such personalized features can enhance your living experience and add to the home's resale value.

A report from the National Association of Realtors (NAR) suggests homes with custom features may fetch up to a 5% premium on resale compared to standard properties.

Finally, new construction homes typically meet or exceed the latest energy-efficiency standards. For instance, according to the U.S. Department of Energy, a house built to the 2023 energy standards can be 30% more energy efficient than one built just ten years earlier.

This means lower energy bills and a smaller carbon footprint, making these homes appealing for environmentally conscious buyers and those looking to save on long-term utility costs.

Cons of Investing in New Construction Homes

While new construction homes bring many advantages, it's important to also consider the potential drawbacks.

The first consideration is the higher initial cost. On average, new construction homes can be about 20% more expensive than comparable older homes, as reported by the National Association of Home Builders.

Including modern designs, premium appliances, and cutting-edge amenities drives the cost higher than a pre-existing home. Many investors perform a cost-benefit analysis on the property to determine if the anticipated return can justify the higher upfront costs.

Construction delays are another potential downside to consider. For instance, the U.S. Census Bureau reported in 2022 that building a new construction home takes roughly eight months. Unforeseen issues, ranging from inclement weather to labor shortages, can push back completion dates.

There are also the HOA and investor constraints to consider. Some HOAs and builders limit the percentages of homes that can be purchased by non-occupant residents. This is done to stabilize the community and establish healthy long-term growth.

Lastly, location constraints could pose a risk. New construction homes are often situated in up-and-coming neighborhoods, which might lack established amenities such as schools, hospitals, and shopping centers.

While these neighborhoods may promise significant growth and development, there's an inherent uncertainty associated with their trajectory.

Ready to Explore New Construction as Your Next Investment?

Should you invest in new construction homes? The answer depends on your goals, the local rental market, and opportunities. If the numbers make sense, new construction properties can be a game-changer for your portfolio, and Jome is here to help you make it happen.

Our New Home Experts have guided investors through purchasing hundreds of homes in thriving new communities. With local expertise and a market understanding, we can help you evaluate your options and make good decisions.

Start your search with Jome and take the next step in your investment journey.

Let’s make your next property a new and rewarding choice!