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3 Powerful Reasons New Construction Rentals Have the Advantage

By: Gregg Cohen, CEO, JWB Real Estate Companies
September 6, 2019
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The thought of a new construction rental may not match your idea of a stereotypical rental portfolio. Until recently, there hasn’t been much opportunity to buy new construction rentals. The game was to buy a fixer upper, pour work into it, and find a tenant. Maybe you’ve even done that yourself. For years, the concept of buying a new construction house as a rental just wasn’t feasible. There was no way the numbers would work.

Believe it or not, though, most of JWB’s inventory is new construction. And the numbers work – so well, in fact, that JWB has over 470 client-owned new construction rental properties.

WHY NEW CONSTRUCTION RENTALS?

It’s true – new construction rentals DO have the advantage over rehabbing older homes. Don’t just take my word for it, though. Besides our many client success stories, we also have data spanning eight years and $80M in assets to back that claim.

Take a look at the top three reasons why we recommend that you invest in new construction rentals:

1. Lower Maintenance Costs

First, maintenance costs are the biggest pain point for investors. Even when you’re hitting your target ROI, those maintenance bills hurt. Because of that, we’ve analyzed the data and created strategies that we know work.

The formula to figure your maintenance cost is:

JWB Real Estate builds new construction rental properties because they are proven to have lower maintenance costs.

The industry standard for maintenance costs is 7%. In comparison, JWB’s new construction maintenance cost is only 4%. We didn’t handpick our best performing homes. That 4% is based on data from all 473 JWB client-owned new construction properties since 2011. The additional cash flow translates into more than $400 a year on a typical home.

It makes sense. Think about a house built in 1940 vs. a house built in 2019. Which one will have less maintenance? The new one. Deferred maintenance won’t be an issue on a brand new house. Vendor warranties are better on new construction properties. In addition, our maintenance costs beat the industry standard for new construction homes.

Maintenance costs are also tied to the tenant’s stay. With a new home you’ll have fewer repairs, residents will be happier and stay longer, which decreases turnover costs – another huge saver on maintenance.

Which brings us to the next reason…

2. Lower Vacancy Costs

When residents stay longer, you won’t have that turnover gap where there’s no money coming in. The resident will pay rent more consistently, live in the home longer, and take more pride in the home.

As a result, they’ll sign longer term leases. We only offer two or three year leases to prospective tenants. A brand new home is a big incentive for a resident to sign a longer lease. To top it off, most residents don’t want to leave when the lease is up. We renew 7 out of 10 leases for the properties we manage.

Here again, we have the numbers to back this up. The formula to figure vacancy costs is:

JWB Real Estate's vacancy costs on new construction rental properties are well below the industry standard. We save investors money and headaches with our proven investments.

The industry standard for vacancy costs is 5%. JWB’s data-driven vacancy cost is 2.09%. That’s an additional average cash flow of over $400 a year. When you’re watching your ROI, that’s a nice chunk!

3. Long-Term Appreciation

The third big reason for new construction rentals is the long-term property appreciation.

New construction homes offer features that appeal to today’s market, not the 1980s. The designs typically have garages and open floor plans, two of the hottest home features these days.

New construction rental homes have plenty of other benefits too. You’ll see lower homeowners’ insurance on a new construction property. Jacksonville in particular has lower property taxes than nationwide.

If you’re starting to think new construction rentals could be for you, give us a call. We help you develop a Personalized Rental Property Investment Plan based on your unique situation and then start building your roadmap for success.