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Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in RexburgThere is a high demand for rental homes in markets across the country. An awful lot of people are looking for a home to rent – with the competition to buy existing homes so strong –  most investors are engaging in new construction to address the shortcomings and fill in the gap. If you are inquiring about a means to expand your rental property portfolio, you might also be wondering if building a home to rent is the solution.

Subject to the conditions in your chosen market and the costs involved, it might make sense to build instead of purchasing an existing home. There are many things you need to find out before ever settling on the decision to build a rental.

Consider the Cost

Home prices and the cost of new construction change largely from market to market. So, it’s imperative to determine your local market well enough to perceive which option makes the best sense for your investment style and strategy. In various places, building a home to rent may be more cost-effective than buying one. This is actually true 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 applies in particular in areas where the demand for new construction is quite high. High demand tends to drive up prices, conveying you will find yourself paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you’re comparing, make sure you take into consideration, not just the cost of the property itself but the amenities and extras that may be relevant to you. New homes also don’t always include things like landscaping and other finishing touches, in particular appliances. But, on the other hand, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years.  With all the good and bad aspects, it’s significant to learn what you’ll get for your money and factor all costs into your calculations.

But, at the same time, there are costs associated with buying an existing home that should be taken into consideration, also. Older homes may need some renovation and repair before you can lease them out. They may further have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things fall apart, 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 important thing to call to mind 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. However, new builds tend to be in recently established areas that may be harder to assess. Contingent on where the community is located, your anticipated appreciation may be something of an unknown for several years until the area is more established and you’ve had the chance to record and track home prices over time. Except, there is always the possibility that a new area will experience sudden increases in home values due to market demand and other factors.

All in all, the resolution of whether to build a home to rent is yours to make. You have to have good market data and a clear investment strategy to help you correctly make the best possible decision for your situation. You may similarly need to get some expert advice from professional Rexburg property managers. In that case, reach out to Real Property Management Southeast Idaho. We can help you take your next steps as a rental property investor with confidence. You can contact us online or call at 208-522-2400.

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