Due to the falling profitability of bank deposits and inflation, many US citizens decide to save money by investing in real estate. However, it is not easy to choose an object for purchase that will generate income, especially in the face of a record shortage of supply.
Experts told us what is more profitable to invest in today – resale real estate or a new construction home.
Here we will provide you with the proper guide between what to choose a new construction home Vs resale property.
Opportunities of a Brand New Construction Home
One of the main advantages of buying a new home is the price, which can increase significantly:
- from the foundation pit to putting the house into operation, the cost grows by 15–30%;
- during the same time, the price of secondary real estate located in the same area can grow at best by 7-10%.
Another important advantage of investing in new buildings is their high liquidity. This is especially true for those who invest in real estate for a long time.
There are certain risks when buying real estate in the primary market. If this is an investment in a new building, you need to estimate the following:
- timing when the house will be commissioned and will be able to generate income;
- all the potential risks associated with construction delays
- if the house is bought with bank funds, then it is important to calculate the profitability, taking into account the amount of the existing down payment and the loan rate.
Another risk of investing in new construction homes is the vague outlook regarding the appearance of the built-up area, especially when it comes to integrated development projects at the initial stage of construction.
Changing the parameters of the project (the number of stories of houses in subsequent phases), and in connection with this, the composition of social, commercial, and other infrastructure is not uncommon today.
Moreover, in some cases, these changes do not occur in the direction of increasing the comfort of residents, and as a result, the plans and expectations of the investor may not significantly coincide with reality, the expert concluded.
What About Resale Property
The arguments for investing in secondary housing include the fact that houses located in already established and settled areas have a certain established environment, which is important in the rental business.
Thus, the landlord is more likely to be sure that in the coming years there will not be a large-scale construction nearby that could cause discomfort to the tenants. Or a new building or another real estate object will not appear right in front of the house, which can spoil the view from the window of their home, and thereby reduce its liquidity.
Having bought a house on the secondary market, the owner will immediately be able to rent it out. However, the profitability of standard-class houses today is about 4%, and the payback period in the case of rent can be over 20 years. In this case, it is more appropriate to talk about purchases in order to save money, and not to receive investment income from resale or rental.
We clearly saw this trend in 2020, when buyers moved funds from bank deposits to real estate due to lower deposit rates and the economic crisis.
When buying an old construction home, there are certain risks. In transactions with secondary real estate, due to the presence of a large number of nuances associated with both the owners and the conditions of ownership of the such real estate, the investor bears greater personal responsibility. Therefore, if, for example, they did not make an effort to check the house and the legal purity of the transaction, then if it is canceled in the event of litigation, they may simply lose the invested funds.
When buying a house on the secondary market, there is also a risk of encountering the problem of poor quality communications, including poor wiring and ventilation, old materials are also worth highlighting among the minuses. In this regard, when investing, it is recommended to consider those houses where major renovations have recently been made.
Up to You
As you can see both options have their pros and cons. And this concerns not only investors but also the ones who buy a house for living in it. The real estate market is quite hard but it can make you good profits if invested in the right projects at the right time.
There is no one-size-fits-all solution when buying a house. Consider all the threats coming from your particular case (budget, area, etc) to make the only right decision.