When scouting out single-family properties for rental income, you do not have to limit your search to existing housing stock. Instead, why not consider buying property in a new subdivision? It provides a good opportunity to maximize your ROI by coupling attractive rental income with low maintenance costs.
Here are some reasons for investing in new subdivision rentals—as well as some caveats to heed.
Everything Is New
If you are an experienced real estate investor, you have likely bought some rental properties that needed “a little work”—or maybe a lot of work—because the price seemingly made it worth your while. But putting your money into fixer-uppers can be labor-intensive, and sometimes what seems like a bargain can turn into a huge money drain.
With brand new construction, you avoid that problem because everything is new—new appliances, new plumbing, new HVAC, new roof, etc.—so the chances of having to foot the bill for unexpected repairs is practically nil.
New residential construction typically occurs in the most desirable areas of your communities. Being able to meet the needs of those who prefer renting instead of home ownership will give you a steady stream of prospective tenants.
Another plus is that new residential construction oftentimes sparks new infrastructure—i.e., new roads, new restaurants, new stores—and that in turn prompts even more residential construction. This makes your investment more likely to pay off with higher rental income and increasing home values.
Good Deals Are Available
While it is true that new subdivisions have no “fixer-uppers” to snatch up at a bargain price, you can still find some attractive incentives. Builders often will cut the price on inventory homes because they want to sell in a hurry. Or if you come upon a subdivision as the builder is ready to close out the community, you might get a discount on a lot that has gone unsold.
To close the sale, a builder might be amenable to paying all or part of the closing costs. Or you might increase your negotiating power if you buy more than one property at a time.
Understand the Uncertainties
One downside to investing in a new development is the uncertainty. You will not have a history of property values or rental prices to consult, though you can extrapolate some information based on an analysis of the zip code.
Even though the property itself has no history, you can evaluate the track record of home builders investing in the area. Analyze property value trajectories as well as rental potential for their previous developments. Also, inquire about their plans for the surrounding area to ensure that future developments will have a positive impact on your property.
Screen Tenants Well
New subdivisions often have a more pristine look than older ones, so as a property owner, it is important to you keep your rental up to these high standards. Screen your tenants well, and spell out in the lease your expectations with regard to property upkeep and maintenance.
Investing in new construction will allow you to build your portfolio with maintenance-free properties that will enhance your bottom line. Zero in on new subdivisions in growth areas to find the investment that is right for you.