This is certainly a positive aspect of ground up construction but there is so much more to consider between the two options. The pros and cons must be considered before any investment, but here are a few of the most important ones for investors trying to decide what to do for their next project: existing real estate or ground up construction.
New ground up construction – pros & cons
There are plenty of pros when it comes to investing in a new ground up construction build. The investor/builder may have their own vision for a property they’ve always wanted to build and a ground up construction loan can allow them to fulfill that. Ground up construction allows a builder much more freedom with the clean slate of a new property rather than rehabbing a property that is already in place and just needs a few repairs. This room for creativity is appealing to investors because the house can turn out exactly how they want it to. They may have to conform locally to properties in the area, so their new property doesn’t stick out and impact the resale but picking every aspect of the house they are about to build is still exciting.
Speaking of houses to conform with, there is also an advantage to ground up construction that investors can take advantage of in relation to the nearby properties. With a neighborhood already in place, the investor has numerous examples to base the After Construction Value off, so a valuation of the property is much less stressful and much more accurate. This relates to that recapture period that was previously mentioned. Having an investment property close in value to the rest of the neighborhood helps an investor recoup their money that much quicker to collect a profit or move on to their next investment.
An often-overlooked strategy in the ground up construction process is what the investor will do with the property after its built. So much time and energy go into the build process, and rightly so, but as an investor, you now have a brand-new beautiful property to take advantage of. The “build-to-rent” strategy allows for more control from the investor, and they can set their rents at whatever price they see fit. They need to keep in mind that they’ll need to secure a tenant for the property to cash flow, but on a brand-new property there is a high ceiling for what the investor can charge. These brand-new builds can be the most attractive when it comes to finding a renter.
The last pro we’ll discuss in accordance with new ground up construction strategy is the fact that the builder would get more time in relation to investing in existing real estate that needs rehab. Usually, lenders will start their ground up construction loan programs at 18–24-month periods. This allows the builder up to 2 years to complete a ground up construction build which should be more than enough time for someone to create their dream investment property. Also, lenders such as RCN Capital, offer extension options to ensure the investor has all the time they need. This way, they don’t feel rushed, and the property comes out exactly how they planned it.
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