Developers are building new properties every day, from single-family homes to multi-unit apartment buildings. Investing in new construction can be a lucrative path for real estate investors, as new builds often require less maintenance than older buildings and allow you an opportunity to get in early in up-and-coming areas. If you’re considering investing in a new construction property, learning about what problems to expect could help you prepare yourself and devise solutions to circumvent them. Below are some common sources of trouble in new residential construction.
When building a new home or building, it’s key that the construction crew devises a drainage solution to allow excess water to travel away from the foundation. Otherwise, after heavy rain, melting snow, or another flooding, the water will sink toward the foundation, pool around it, and erode the carefully constructed base of the home. If there’s a nearby body of water, it’s clever to channel moisture into it. For landlocked properties, professionals often design solutions that channel water slowly so the land can absorb it gradually without pooling.
If your new construction property has a basement or a crawl space, it’s especially important to ensure there’s a proper plan for drainage. This helps you avoid mold, erosion, and flooding. Drainage solutions can include slot drains, trench drains, swale systems, and high-density polyethylene drains. Proper gutter installation also helps direct moisture from the home.
Faulty Windows and Doors
The windows and doors on your rental property provide you and your future tenants with vital protection against the elements. It’s important that the developer chooses the right windows and doors for your local climate, such as those that provide extra resolution during frigid winters. Past the selection of the proper materials, faulty installation of windows and doors can heed serious consequences.
It’s crucial that windows and doors fit their openings precisely and are free of cracks, gaps, or bowing. Improper installation or fit could allow cold air, heat, or moisture to get into the property. Not only will this likely disturb your tenants and result in complaints, but it can also cost you money. Even if the issue is too minimal to cause discomfort, the damage can add up over time. It’s expensive to replace trim or repair materials eroded by unexpected moisture. Investors can save money by requesting an inspection of all windows and doors in a potential new property.
Lack of Insulation
All residential properties require insulation, and if a construction crew skimps on insulation or installs it poorly, the effects can be noticeable. Insulation uses the scientific processes of convection, conduction, and radiation to reflect heat and promote the proper flow of air in a home. Essentially, inserting the right materials into the home’s walls, garages, basements, and other areas can help ensure that your tenants don’t have to overextend their heating, ventilation, and air conditioning (HVAC) systems. Multi-unit buildings may have unique insulation needs too, depending on the building’s airflow.
The Department of Energy regulates the amount of insulation a property needs, and it can vary depending on the type of build you’re buying and the climate in which it sits. A figure called the R-value measures the strength of insulation, and some properties may require many layers to reach their required R-value. Proper installation is an important step in new construction for real estate investors, especially those who may be responsible for their property’s utility bills. Plus, allowing too much heat to escape the building could be a safety hazard, especially in areas with harsh winter temperatures.
Poor HVAC Setups
A Realtor Magazine study from Jan. 2022 states that the top issue found during inspections of new construction properties is a dysfunctional HVAC system. As previously discussed, ensuring your tenants have access to proper heating and cooling can be essential. Uncontrolled temperatures are a safety risk, and HVAC repairs can be time-consuming and pricey. The best way to avoid pouring money into central air repairs in a few years is to make sure it’s done right the first time around.
There are a lot of risks that could lead to HVAC issues in a new building. You could face sub-optimal airflow, which could lead to expensive utility bills and uncomfortable temperatures. Faulty HVAC equipment could also cause leakages, which could lead to mold or damage to the structure or even tenants’ belongings. The construction process itself could even dirty up your working equipment. If contractors run the heat or AC while they work, dust, debris, paint, or other particles could wind up clogging fans, ducts, or vents.
New homes typically come with brand-new appliances. This is, in some ways, a benefit for investors. In most cases, new appliances mean you have a few years before you start getting calls for repairs on faulty stoves and fridges. However, you’re typically at the mercy of the developer. If they’re looking for places to cut costs, they might buy cheap appliances, aftermarket parts, or used devices. Sometimes getting a bargain upfront means more costs later, as cheap appliances can break within just a few years of use.
Some new construction properties don’t come with appliances at all. That’s a pro or a con depending on how you look at it. You have to sink some of your own money into adding appliances so the home can be inhabitable, but you get some say in what appliances go in the home. If your builder chose appliances that don’t meet your standards, you may be able to purchase an upgrade through them or manually replace them with high-quality options in a few years.
It’s important that new homes have the electrical infrastructure necessary to support tenants’ electrical needs. It’s not uncommon for contractors to finish a new home or apartment building only for inspectors to learn they didn’t install enough wiring, add enough outlets, or place them in practical locations. If you’re in contact with the developer, speak with them about their plan for wiring sooner rather than later.
Knowing about the risks of investing in new construction can help you formulate a plan to minimize your expenses and headaches. If you’re looking for a reliable partner who can help you reach your goals, our team of knowledgeable creative thinkers at Titan Funding is eager to serve you. Having access to dependable financing built for investors can empower you to expand your portfolio in your target markets. Rental property loans are a specialty of ours, so contact us today so we can learn more about the kind of financing you need.
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