While the thought of a new construction rental may not be your stereotypical rental investment, it’s become a top method many investors have been exploring. Surprised? Let’s talk about why.
For years it just didn’t make sense to build new construction rental properties. The numbers only worked if you bought an older house, poured a lot of money into it, and rented it out. Lately, though, the game is changing.
We’ve crunched eight years’ worth of numbers spread over $80M in assets. It works.
We’ve found three compelling reasons as to why new construction rentals are gaining steam within the real estate investing community:
1. Lower maintenance expenses
Maintenance costs a huge pain point of rental investing. Even if you know it’s needed, those maintenance bills sting. After analyzing data over the last decade, however, the results are clear – new construction rentals have lower maintenance costs.
The formula to calculate your maintenance cost is:
The industry standard for maintenance costs is 7%. We’ve found that new construction maintenance cost is only 4%. That means an extra cash flow of over $400 a year on an average JWB home.
Think about a house built in 1940 compared to a house built in 2019. Of course the newer one will have less maintenance. Everything is brand new. In addition, the vendor warranties are still intact on a brand new house.
With a new home you won’t have as many repairs and residents will want to stay longer, which leads to the next reason…
2. Lower vacancy expenses
When residents stay longer, it’s a win-win. Your rental income is more consistent, and they’ll take more pride in their home.
Residents in a new home are typically willing to sign longer term leases. New homes are a great incentive to commit to a longer term. We’ve found this method results in renewing 7 out of every 10 leases.
The way to calculate your vacancy costs is:
The general industry standard for vacancy costs is 5%, while we aim for 2.09%. That means an extra cash flow of over $400 a year. That adds up quickly!
3. Long term appreciation
The third reason new construction rentals are becoming a popular investment is because of the long-term property appreciation.
New homes can offer features that are popular with today’s market, not the 1980s. Two of the most in-demand features are garages and open floor plans, features that are easy to include with new construction homes.
New construction rental homes also have other savings including lower homeowners’ insurance.
Whether you’re a new or experienced investor, new construction investment properties are worth considering. We’ve found the returns to be stable and consistent over the long haul.
As a founding partner of JWB Real Estate Capital, Gregg Cohen has seen the company grow from humble beginnings to serving over 1,000 clients worldwide build wealth through rental properties and enjoy both passive income and home price appreciation. With total assetts under management include over $350 million, Cohen and team have been featured multiple times in The Wall Street Journal, The New York Times, Bloomberg, Inc. Magazine, Jacksonville Business Journal, and The Florida Times-Union. To learn more about building a rental property portfolio, go to www.jwbrealestatecapital.com or call (904) 677-6777.
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