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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in Goose CreekAcross different markets in the country, there is a high demand for rental homes. Because of the number of people searching for a home to rent, competition to buy existing homes become so strong that some investors are turning to construction to fill the gap. If you want to expand your rental property portfolio, building a home to rent could be the answer.

It might make more sense to build instead of purchasing an existing home depending on the conditions of your chosen market and the costs involved. Here are some things you have to consider before deciding to build a rental.

Consider the Cost

Home prices and the cost of new construction vary widely from market to market. So, it’s important that you are familiar with your local market so you can determine which option is the best for your investment style and strategy. In some places, it may be more cost-effective to build a home to rent rather than buy one. This can be a good option for you if you already own a vacant lot, have a good relationship with a contractor, or have the edge on a new construction project.

Local Market Demand

Small to midsize investors might find that building a home to rent may not cost less than buying one– even in a competitive market. This is especially true in areas where the demand for new construction is very high. The high demand drives up prices so you will have to pay more per square foot than you would for an existing home.

Maintenance and Renovations

When comparing costs, make sure you include not just the cost of the property itself but the amenities and extras that are important to you as well. New homes also do not automatically come with landscaping or appliances so you should also include the cost of these. But they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years. Take all the pros and cons into consideration so you will know what you’ll get for your money after you factor all costs into your computations.

On the other hand, there are also additional costs associated with buying an existing home that you should factor in, as well. Older homes often need renovation and some repair before you can lease them out. They may also have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. Since these things wear out, repairing and replacing them is a must. These additional renovation costs should also be a consideration in your decision-making process.

Long-Term Appreciation

Another key thing to keep in mind is the long-term potential for appreciation. Value increases for existing homes are often easier to estimate because of the number of comparable properties and established rental history in the neighborhood. On the other hand, new builds are usually in recently established areas that may be harder to assess. It could take several years for your anticipated appreciation to happen depending on where the community is located. It would take time until the area is more established and home prices have been tracked over time. At the same time, it is also possible for a new area to experience sudden increases in home values due to market demand and other factors.

Finally, it is your sole responsibility to decide whether or not to build a home to rent. With good market data and a clear investment strategy, you can make the best decision for your situation. You may also want to get some expert advice from professional Goose Creek property managers. If that is the case, reach out to Real Property Management Charleston. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 843-900-4061.

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