Is buying brand new homes from builders worth it? Read our buying new build tips and advices. New homes from the builder are the best and easiest investments. You can plop down a small deposit check, and then it takes the builder 9-12 months to build a house for you. By the time they’ve built your house, hopefully the market has increased and you’ve got instant equity in your new home purchase.
New home builds are usually much cheaper per sq.ft., the larger the house is. Since most investors buy 1-story, 3-bedroom starter houses, it’s easier to rent out a 2-story, 4-bedroom house in that same neighborhood. Also, it’s better to have larger square footage for resale!
Never mind paying builder lot premiums for a large lot, a view, or a superior location. Years into the future, when you go to resell your house, you’ll be glad it has a bigger lot, or that it backs up to a lake. Especially if you find yourself in a depressed market – your house with the extra feature (that you paid for at the time of purchase) will sell before the competition.
It’s good to buy homes in master planned communities with homeowners association fees, rules and guidelines. The homeowners association does the landlords job for you. They patrol the neighborhood, looking for violations – an RV parked out front – oil stains in the driveway – Christmas lights in April. The homeowners associations are a pain in the butt with their silly rules and regulations, but they’re looking after our property for us.
When you buy a new home from the builder, they will usually give you a nice cash incentive to use their in-house lender. Weigh that incentive with the amount of extra garbage fees that you’ll be paying – it usually is favorable to use their lender – but not always.
Sometimes it is more advantageous to pay cash for your new income property. Write a check from your home equity line of credit (a heloc is a loan against the equity in your house – it’s can be drawn upon and replaced like a checking account – and the interest is usually adjustable at Prime rate), then, after you own the house, you can refinance it and use that money to purchase your NEXT property (refer to the Leveraging Your Money page). If you can swing a cash purchase, it makes the whole process easier. Also, you can use your cash buying power to negotiate better terms.
What are the pitfalls of buying new builds?
When buying brand new homes from builders remember:
Do NOT buy any houses that back to a road. Remember about location.
Go ahead and spend some money on lot premiums. Having a big lot can be fabulous for resale down the road, and a cul-de-sac location is fantastic for getting both tenants and for resale.
Pay close attention to what the house will back to. If the house backs to a greenbelt, that’s great! If it backs to other houses, it makes all the difference, if it’s backing to a bunch of 1-story houses, or backing to a 2-story.
Try to choose a house with cathedral or vaulted ceilings — makes it nice for resale. An open kitchen is essential as well.
Keep in mind, buyers always shop in increments. Buyers tell their Realtors, “I want a house over 2000 (or 2500, or 3000) sq.ft.”. Don’t buy a 2950 sq.ft. house when a 3015 sq.ft. house costs just a bit more.
Can you add on a 3-car garage for not too much? Do it! Buyers (the husbands) often say, “Don’t show me a house unless it’s got a 3-car garage!”
Buying brand new homes from builders: when buying an investment property then it’s worth spending money on:
A fireplace (but no upgrades on the tile work around it).
Rounded corners and raised panel interior doors.
Oak cabinets – spend a little bit to upgrade them (but not a lot).
There’s nothing wrong with Formica counters – go with the included countertops.
Windows in the garage doors – light is great! Plus, the garage doors with windows give a nice street appearance.
Wiring for coach lights on both sides of garage.
If it’s not too much, pay to upgrade the flooring to 14” or 16” ceramic tile, plus put it in the family room. If it seems expensive, take the free linoleum. You can always upgrade the flooring later when you’re ready to resell.
You can add a window (for light) or change a window to a slider door (for instance, if the master bedroom is on the main floor.
Pay a few bucks to have a beige or taupe color painted on the walls. Makes it look nice for presentation to potential tenants.
When buying brand new homes from builders and upgrading – don’t pay for ceiling fans, a gas lot set, a garage door opener, upgraded carpets or pad, upgraded faucets, sinks, appliances, yard or sprinkler installation. These are all things that you can do cheaper yourself, or postpone them for down the road when you wish to sell the house.
Basically, I’ll only pay for the upgrades that need to be incorporated at the time of build. All the other stuff (like lovely granite counters) you can do in 10 years when you’re ready to sell it. Do not allow your emotions to run rampant when choosing upgrades. Keep saying to yourself, “This is NOT going to be my home.”
Now as you have buying brand new homes from builders and pitfalls of buying new builds explained it’s time to go look for your real estate investment occasions.