Top Benefits Of Doing Investments In Construction Of New Real Estate

Buying new construction is a process, which dramatically differs from buying a used house with a history. Here, everything differs pricing principles, pros and cons, and available financing schemes. In this article, we’re looking at all these in detail.

What is newly constructed real estate?

A building (many-story or private) that has never been on the market before, which constructs right now or just recently was finished and that is sold by the builder, who is the first owner (but not dweller), is called new builds for sale.

New houses investment peculiarities

Buying it dramatically differs from buying a used home because:

• The selling process is different, which frequently includes financing schemes and purchasing of the rights for a new home when it is finished, not a currently existing home per se. This scheme is done differently in different states and countries, for instance, through bonds or special securities providing the rights of ownership, deposited to a bank account. Some schemes are more secure, some less.
• As there are many pitfalls in buying a newly constructed home, a buyer would probably need a good real estate agent. Preferably, the one deeply familiar with a builder & its objects – that’s in addition to necessarily being a market specialist in local laws and procedures.
• There is a different type of contract – not only about selling per se but about responsibility and terms of ending the construction (as you might be buying an unfinished one); it is also about what amenities there are, what type of finishing (if any), what the surrounding area will include (upon house/apartment sales day and/or in future/past days), and how are monthly/yearly installments of a buyer should be made (if the real estate is bought through a construction company’s financing scheme).
• And yes – there is the financing of the purchase directly from the seller, which can significantly differ from bank conditions on both sides, for worse or better. Sometimes, a builder can offer an interest-free installment plan, which might presume full repayment in the term of anything in between 1 and 20 years.

A new home is attractive for buyers because it is new – and we all love new things, from houses and cars to apparel and ice cream cocktails. How else is it attractive? We list a number of reasons in the next chapter.

Advantages of buying a new construction home

Location. This is the most important value-adding aspect of buying new construction. A part of it is a window view – sometimes, only this feature is able to double the price. You’ll probably do more money from an A-neighborhood real estate than from something located in stagnating or less-than-impressive hood. The price is affected by the schools and colleges around, nice roads, low crime rate, shops and salons around, and the things like that, which are of bigger interest of families and high-income high-value tenants or buyers.

Increased supply. How exactly you buy the new estate matters – whether it is an individual offer from a builder or something less available for natural persons like foreclosure, REO, short sale, wholesale listing, or a subscription-based only offer.

Maintenance costs. As entire everything in the new building is new, you probably won’t face such problems as a clogged piping, a leaking roof, or cracks in the walls. At least, not in 5-10 first years. Thanks to extremely low maintenance costs, this can be amazingly alluring for rented properties. However, at times, it is compensated by higher maintenance costs and property taxes.

More energy-efficient. New homes incorporate modern energy-saving requirements, some of which are more than just a rule of good tone but have already become market standards, or even legal demands. This can be AAA-energy-saving appliances, roof solar panels, modern heat insulation materials, carbon-footprint-free HVAC equipment, or even super energy-efficient heat pumps. These all lower your energy bills.

Finishing of the home/apartment can be made turnkey by a construction company. Some do it as an extra offer for free, some – with discounted pricing if ordered from them bundled with a home, and some allow winning it as part of promo campaigns.

Is a house a good investment at the earliest stage of a new project? Yes! You can grab the best price, which will significantly rise by the end of construction and commissioning processes. So you’ll win simply on reselling it, sometimes, heftily, especially if you tune it up a bit in the pre-sale preparation.

Disadvantages of newly constructed houses

1. Higher pricing. Rough-finish new house/apartment might cost the same as a fully finished and equipped same-footage used house or apartment. Here, you pay for something new, which exploitation term has just begun, whilst a used real estate might have been standing here for 20… 200 years and needs thorough remake.
2. There is a risk that some newly constructed houses will not be finished at all – construction fraudsters exist even today and they are hard and expensive to nail.
3. Unknown territory. Making an offer on a new construction home, you might not know exact taxes for it, utility cost, or financing rate change. Some of that may increase dramatically the second or third year after the purchase, leaving you with a negative cash flow.
4. A real estate agent for new construction may hide from you important negative aspects of the construction, like a bad reputation of a builder, the absence of some construction allowances, etc. (as he might be bribed).
5. Tough to negotiate on price. Unlike new construction, the price of a new one is fixed and very rarely jumps below, leaving you no space for negotiation. What a seller can go for, however, is the cost of finishing, appliances, or adjacent purchases like the garage or discounted personal area for a bigger yard of a private home or on a roof/cellar of a many-story building – anything that’s bought from a builder or connected contractors. There are price discounts, however, which are a part of promos, like -5% for the last apartment.

An afterword about the construction investment

Finally, you might be interested, is it a good time to invest in real estate. In the US, this directly depends on the mortgage loan rates – when they are low, it is a good time to invest in new construction with bank financing. When they are mid to high, think of buying a used home and gain profit on it by means of such things as renovation + reselling or turning it into a rented estate. Also, there is a possibility of a passive income of buying and holding until the price grows.

When you have the full price of a house on your hands, a good investment time is defined by the economy’s condition: it’s wise to buy on the lowering and sell on the rising.