Older houses often come with issues and if you are a real estate investor, there is always a potential risk that you may end up spending more than you planned putting your investment right, which will eat into your profit margins.
If you are after a more hassle-free investment strategy, there are a number of potential advantages to investing in brand new or pre-construction homes, including the fact that your property comes with a set of guarantees to cover you in the unlikely event that there is a problem that the builder needs to fix.
Here are some of the key points to consider when considering an investment in pre-constructed or newly built homes.
Viewing the property or construction site
If you are considering buying a newly built property or one that is still in the pre-construction stage, you will be meeting a greeter at the on-site office, who may well be the builder’s real estate agent.
Some builders are using services like NHSalesCoach.com to successfully market the property themselves or they might appoint a local realtor to meet and greet prospective buyers like you.
If you are greeted by a real estate agent who is representing the builder, although it is legal in some states for the agent to represent both the builder and you, it is not advisable to take this route if that is suggested to you during your discussion.
All you need to remember is that a real estate agent has a legal obligation to perform certain tasks on behalf their client, which is the builder, so if there is a situation that arises where the agent has to take a side for some reason, you already know which way that is going.
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Keep the arrangement separate and use your own realtor from the onset in preference to a dual agency arrangement.
Financing the deal
A good number of new home developments try to be one-stop shops so that it is supposedly easier for the buyer but it also gives them a greater element of control and potentially some bigger profits through commission kickbacks.
The builder might state that they have an in-house lender who can offer great rates on a loan to buy their house and some even slant the conversation to imply that your best chance of getting a deal on the property is to go through their lender rather than anyone else.
Always keep your options open and shop around for the best deals elsewhere, although there is probably no harm in asking the builder’s lender to provide a Good Faith Estimate, which will list all the costs and fees associated with their loan offer, so that you can take it away and compare it with other offers.
Although you will be expecting the builder or his sub-contractor to complete the property to the expected standard, it is difficult to the untrained eye to tell if there is anything wrong.
It is vital that you have the home professionally inspected by an independent professional prior to closing escrow. The inspector will help you to confirm that the work has been completed in strict compliance with the plans and specifications and you should definitely take up a new home warranty to deal with any issues not covered by the builder’s warranty.
There are a number of perceived advantages to buying pre-construction, such as being able to take advantage of any early phase discounts on offer in order to attract early buyers.
Buying in that first phase could provide a saving of anything up to 10% of the final listing price, which means you could even sell the home on quickly after it is completed any potentially generate a profit.
Buying in the first phase of a construction project can also give you more choice on which unit you want on the development, although you should be aware that is a fairly common practice to hold back some of the prime units until the end, because they know they can get top dollar for them.
In addition to securing a good deal for buying in the first phase, you should also have a set of questions to ask the developer such as what fixtures and fittings will be included and whether you will get a choice of color scheme or finish.
You might also want to change the layout of the unit if you think it is more marketable that way, and that may be possible if you can come to an agreement with the builder about your plans.
Whether you choose to go for a newly-built home or a pre-construction project, there are definitely advantages that go beyond that great feeling you get when you get the keys to a place that has never been lived in before.