Sleek new appliances with lengthy warranties, no need for repairing creaky doors and leaky faucets, and a blank slate for tenants to turn a house into a home — it’s easy to get the appeal of a new construction property whether you’re the landlord or the tenant.
Nearly 43 million Americans rent their homes, making up 34.5 percent of U.S. households. And new builds are becoming more prevalent as rental properties as landlords strategically invest in low-maintenance units over existing homes that need to be flipped, renovated, or repaired before entering the rental market. Developers added 105,000 build-to-rent homes in 2022, with another 50 percent more anticipated to come by 2025.
If you’re thinking of entering the investment property game, a new construction build may be your best bet. Here’s a look at the eight key benefits of buying a brand-new home as your rental property.
People are drawn to shiny new things, and houses are no exception! Research suggests 41 percent of Americans would prefer to buy a newly built home over an existing one. But for Americans who can’t afford to get onto the property ladder, they’ll opt for the next best thing: renting a brand-new property.
New construction homes allow tenants to be the very first ones to make their mark on the property, which is appealing for prospective renters and may even snag a higher monthly rent price.
Even if you’ve had one or two tenants in the home for a few years, the property should still be in great condition for subsequent renters compared to an older home that isn’t as fresh and modern.
Tailor-Made for Renters
Investing in a new construction property also means you get to call the shots on designing the home of your renters’ dreams. The most popular features Americans are looking for include open-concept floor plans, outdoor living spaces, modern kitchens, energy-efficient appliances, and tons of storage space. New-build homes have a leg up in this space over existing homes that may face some limitations. You, as the landlord, won’t have to spend a fortune on renovating outdated kitchens and bathrooms, or lower your rental price point to compensate for offering a less desirable old-fashioned home.
Location is a crucial deciding factor for tenants searching for a rental, and this is another area where newly constructed homes excel.
Traditionally, brand-new homes are built in new developments in trendy or up-and-coming neighborhoods with better schools, lower crime rates, and access to carefully curated community amenities like plenty of public transport options, parks and green spaces, gyms and yoga studios, and shopping malls and restaurants.
Keep this in mind when you’re house hunting for an investment property. You’ll have a far easier time finding high-quality tenants willing to pay a fair market price if you’re offering a rental with these perks.
You’re also future-proofing your investment by choosing a location where you know there will be consistent demand for housing.
Value Appreciation and Instant Equity
If you do your homework and choose to buy a new build in an emerging market that’s growing in demand, you’ll see the going price of your home skyrocket.
You could, for example, buy in a developing neighborhood with limited housing supply to fill an influx of new workers in the area. Over the years, watch the community change tremendously — with your property’s price tag steadily creeping up. If the value of your home purchase appreciates, you’ll build equity that much faster. You won’t see that kind of increase in home valuation with aging homes in existing neighborhoods though.
Minimal Repairs and Maintenance
Homeowners, tenants, and landlords alike can all relate to the pain of dealing with an aging home, from major fixes like a leaky roof and a broken refrigerator to minor fixes like a creaky door or a dripping faucet.
Home repairs are inconvenient and costly: Spending on emergency repairs across the country averaged $1,963 in 2022, while home improvement spending totaled $8,484.
Landlords won’t have to deal with surprise repairs and maintenance when they’re managing a new-build home, at least for the first few years. This is a big draw for investment property owners who want to pull in a passive income without the headache of taking care of an older home.
Better insulation, double-glazed windows, and Energy Star-certified appliances — new homes are designed with energy efficiency prioritized from the ground up.
These green-friendly swaps make a big difference: Tenants will have lower energy bills, the home will be more comfortable, and they’ll do their part for the environment, according to the U.S. Department of Energy.
Take Energy Star appliances, which new homes are typically fitted with, as a prime example. They use anywhere from 10 percent to 50 percent less energy per year compared to non-energy-efficient appliances.
An Energy Star-certified dryer uses 20 percent less electricity, saving consumers $210 in electric bills over the appliance’s lifetime, according to the National Resources Defense Council.
On top of energy savings and new, reliable appliances, you can count on warranties to protect your investment property. New homes come with a builder warranty, which covers permanent parts of the home like concrete floors and plumbing and electrical work, along with home warranties, which cover appliances and air conditioning systems, according to the Federal Trade Commission. The FTC says warranties range from a year up to a decade.
If anything goes awry, your warranties will kick in. With a new property, you’ll pay a lower home insurance premium too.
Lower Upfront Costs
If you’re buying a new home before it’s constructed, all you’ll need is an initial deposit in earnest money to reserve your lot.
If you’re getting started with investment properties, this is a much smoother introduction compared to encountering bidding wars or putting down 20 percent to purchase an existing home.
You’ll also have more control over the buying process by investing in new or pre-construction properties so you can budget and plan for subsequent payments.
Be Aware of the Downsides
There are two sides to the coin, however: Buying a newly constructed home as an investment property comes with a few disadvantages you should be cognizant of.
They can be Pricier
While you won’t have to budget for pricy renovations and repairs, you will spend more on buying a new home compared to an existing one.
In October 2022, for example, U.S. real estate estimates pegged new construction home sales at a median price of $493,000 compared to $379,100 for existing homes.
For some consumers, the higher price point could dissuade them from buying new.
Longer Commute Time
As certain regions become denser and more populated, builders are forced to construct new homes and communities farther away from the city center. This could mean potential tenants will have to commute to work, and you may have to travel a longer distance to get to your rental property.
New builds may look too similar, equally spaced apart with matching lawns and landscaping in cookie-cutter neighborhoods. For some renters — and even their landlords — this is too generic.
New homes also don’t typically have the nostalgia and charm that come with older homes — the antiquated fireplace, vintage French doors, or a nook under the stairs — that many renters want in a home.
They may require some patience.
Whether you’re buying a pre-construction home that needs to be built, or you’re on a waitlist for a new home when supply isn’t meeting demand, you may have to deal with a waiting game. Bad weather, supply chain issues, and problems with building permits may delay the construction and closing timelines, too.
You and your tenant will also need some patience if you’re buying in a new development that’s still under construction and without many neighbors or amenities. Make sure potential tenants are aware that they aren’t moving into a well-established community if this is the case.
But trust the process — it’ll be worth the wait.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.