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Build or Buy: The Pros and Cons of Investing in a New Development vs. an Existing Property

We live in a time when urban development is constant, and existing buildings constantly accumulate all around us. With all the opportunities to build from scratch or buy into an existing property, it can be impossible to settle on an informed decision about how to invest in real estate.

For those struggling with decision paralysis, we’ve prepared this guide to the pros and cons of building and buying investment property. In this article, the costs and benefits of new developments versus existing properties will be made clear. After reading, you should be ready to decide on the best form of real estate investment for you, and be fully prepared when launching into your next venture.

New Investment Properties: The Pros

building-community-new-apartment-architecture-competitions-books-architecture-_dezeen_hero-a.jpgSource: dezeen.com

An obvious choice for real estate investment is putting your money into new properties with high potential income from tenants who like their spaces new and modern in design. That’s logical, but it isn’t the only reason to invest in new developments.

Newly-built properties expose you to fewer costs in the form of maintenance. Since they’re new, your earnings won’t be diluted by repairs, maintenance, or other costs associated with keeping a building safe and ready for habitation. When everything from water to electricity is brand new, it’s all covered by warranties. If anything goes wrong, your cash flow will be compensated.

Modernity appeals to investors and tenants alike. New homes will cost a premium over older properties. But people are willing to pay extra to live in the new. The steady growth of those people will mean more tenants, and more income down the line.

You might not be sure your property will earn its value back.  Crazy as it seems, that’s an advantage! Because if you aren’t sure your property will earn its full potential value, you can benefit from the sweet depreciation benefits of an uncertain future. Since full return of investments aren’t definite, you trade that off with tax benefits by paying off its real value over time, instead.

New Investment Properties: The Cons

However, to reap those rewards, you have to pay the price, first.

That price is the cost of entry, and for new homes, it’s higher than average. You don’t just have to compensate the agent in charge of the property, but also the builders who put something in that property worth living in. That price might turn you off when the overall cost is something too high in today’s market.

Aside from the cost of entry, you have assess the overall value of the property. Why? You won’t always have the capital to make physical adjustments to increase it. Its initial value will usually remain the same for a long time, meaning low opportunity for further capital growth.

So, you’ve judged the property’s value, paid the cost of entry, and are waiting for the property to be liveable. What happens then? Construction takes time, and that time means stagnant income potential. You need to time your investments wisely, because income potential is tied while building. It’d be an overall loss if construction finishes, but the market values your property less than before.

Once your investment stands tall, remember that it’s standing against competition in every direction. Modern properties appeal to everyone at face value, so you’re going to have to compete against plenty of other real estate investors that had the same or better ideas as you.

Existing Investment Properties: The Pros

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Source: flickr.com

“If it ain’t broke, don’t fix it”. But if it is broken, with effort, anything can be fixed up to benefit you more than it originally could’ve. Don’t worry about being afraid to invest in new properties, because old properties are just as worthwhile a venue to put your money in.

You have the power to boost the equity of your chosen property. The magic of renovations to an old structure is their potential to upgrade a place’s utilities and amenities, all while being tax deductible. Your money goes directly towards increasing the value of your investment.

And since the property initially won’t be worth much, you have a more affordable cost of entry compared to new developments.

The property itself might not have a significant, explicit value, but remember the basic rule of any potential investment: location. Most likely, the reason the property exists is that it’s placed somewhere that sees a lot of attention and activity. And those two can only grow.

By the time you invest, the property will most likely be in a noisy, kinetic area, and people will want to rest their feet somewhere. With that concentration of people looking to settle, you get quick and reliable projected returns from the basically certain tenants’ rents.

Existing Investment Properties: The Cons

Of course, those rewards require time and effort. Renovations are an initial expense, but maintenance and repair will be more expensive compared to new developments because of aged utilities and systems. Some of your cash will be diverted towards the parts of your property that are inefficient or not easily rehauled.

An already-built property means you’re limited with design and remodeling choices. If you’re intent on boosting your equity, there won’t always be a pool of possibilities for you to fish from. You could always try partial deconstruction, but that’s basically the same problem as with new homes: stagnant time, stagnant income. Think carefully if the property you choose has potential past what it’s already been through.

Conclusion

Should you build or buy? It all depends on you! A new development is risky, but the return of investment will be premium and there’s greater compensation for your gambles. Existing homes take work to compete with modern options, however the income earned will be sure and consistent.

What you invest in will reflect if you’re entering the landscape bravely or wisely. But what matters is your willingness to take that first step into the world of real estate investment.Curious to learn more about the world of real estate investing? Visit us at BitOfProperty for the lowdown on real estate, investing, and everything else in between.

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