Investment properties are all about the money, but you shouldn’t invest your hard-earned cash into just anything. So is custom building your investment property worth it? This article explores some of the pros and cons of building a custom home when purchasing an investment property.
Custom Building Your Investment Property Pros:
Lower Priced Than Expected/Current Market Value – When you custom build a home, you can usually assume that it will be less than what the market value is currently sitting at for similar homes in the surrounding neighborhood. This means you could pick up this investment property for less than its expected market value, which equates to more profit potential when you sell.
Less Down Payment Needed – A typical investment property requires 20% down, but if you custom build the property, you likely only need 5-10% down. This means more money is left over at closing for some extra updates or some cash to put into your investment wallet.
Less Competition – When you’re looking for investment properties, it’s all about beating out the competition to get the best deal possible on an investment home which equates to higher profits. There will be less competition with custom building your investment because most investors are usually looking for resale properties to buy and flip quickly. That also means you’ll have a better chance of getting this investment property before anyone else does.
Flexibility In Design – If you want a two-story property and you custom build, then it’s yours. That’s what investment properties are all about; the flexibility to make the property fit your needs. With a custom building, you’ll be able to design something that fits your needs and works within your budget, essential for any investment property purchase.
Custom Building Your Investment Property Cons:
More Work (and Potential Expenses) – When you custom build an investment home, there will likely be more work involved with that, plus the potential of unexpected expenses cropping up during construction that could cost you extra money in the long run. If your goal is to find a better return on investment, stick with traditionally building investment homes because those tend to cost less and have a good market value every time.
Out of The Box Design – What you buy when custom building an investment property is a one-of-a-kind home that will not look like any other property in the area. This can work for or against you when selling, so it’s something to consider carefully before deciding to build new or purchase existing.
Custom Homes Cost More In Tax – If you buy a custom investment property, this property will cost more in taxes because taxes are assessed at total market value minus what you financed to purchase the investment home. That means that full market value comes into play when figuring out how much tax you’ll need to pay on top of the mortgage payment, which could be a problem if you’re looking to sell quickly.
Personal Investment vs. Investment Property – When you custom build, it’s private plus investment property, so it could be hard to quickly get out of the investment property market if you need the money for something else.
Do Banks Loan For These Types Of Properties?
Most banks won’t loan on investment properties; because they don’t want it stuck in their investment portfolio; they want to make sure the investment home doesn’t become a personal home or vice versa.
Meaning it can be hard at times to get out of the investment property market once you’ve made the initial investment and even harder if lenders don’t consider your custom-built purchase as an investment.
That means you’ll likely have to pay cash for this investment home which decreases the return on your investment when selling or renting out the property.
In Summary, Understanding The Benefits Of Building
Are you looking for a custom home builder who can prove the investment value of building your first home? Contact McCalls Home Builders today to learn more about our neighborhood plans. It’s not just your future home you’re building; it’s your community.