Skip to Content

Get a FREE assessment of your rental property. Start here!

Get a FREE assessment of your rental property. Start here!

Should I Buy a Rental Home or Build One?

Framing of a New Home Being Built in Jamaica PlainThere is a high demand for rental homes in markets across the country. A lot of people are looking for a home to rent – with the competition to buy existing homes so strong –  a lot of investors are resorting to new construction to bridge the gap. If you are searching for an approach to expand your rental property portfolio, you might be thinking about whether building a home to rent is the way.

Contingent on the conditions in your chosen market and the costs involved, it might make sense to build instead of purchasing an existing home. There are countless things you need to understand prior to making a decision to build a rental.

Consider the Cost

Home prices and the cost of new construction differ broadly from market to market. So, it’s essential to learn about your local market pretty well to identify which option makes the most sense for your investment style and strategy. In a lot of places, building a home to rent may be more cost-effective than buying one. This applies especially 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 is all the more true in areas where the demand for new construction is extremely high. High demand tends to drive up prices, indicating you will turn out paying more per square foot than you would for an existing home.

Maintenance and Renovations

As you’re comparing, ensure you take into account not just the cost of the property itself but the amenities and extras that may be significant to you. New homes also don’t always include things like landscaping and other finishing touches, namely appliances. Nonetheless, they may have upgraded features, like energy-efficient HVAC systems, smart technologies, and lower maintenance costs for the first few years.  With all the advantages and disadvantages, it’s relevant to determine what you’ll get for your money and factor all costs into your calculations.

However, there are costs associated with buying an existing home that should be taken into consideration, too. Older homes may need some renovation and repair before you can lease them out. They may likewise have aging elements and systems, like the roof, electrical system, HVAC system, sprinkler system, and more. As these things wear off, you’ll need to repair and replace them. These higher renovation costs should be taken into consideration in your decision-making process.

Long-Term Appreciation

Another essential thing to bear in 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. But, at the same time, new builds tend to be in recently established areas that may be harder to assess. Subject to where the community is located, your anticipated appreciation may be something of an unknown for several years till the area is more established and you’ve had a chance to monitor home prices over time. On the other hand, there is the possibility that a new area will experience sudden increases in home values due to market demand and other factors.

In the long run, the choice of whether to construct a home to rent is yours to make. You’ll need good market data and a clear investment strategy to aid you to make the best probable course of action for your situation. You may moreover require to get some expert advice from professional Jamaica Plain property managers. If so, reach out to Real Property Management Boston. We can help you effectively make your next moves as a rental property investor with confidence. You can contact us online or call at 617-522-0099.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.