Building Rentals

It’s been 18 months since we closed on the build of our multifamily rental property.  I shared previously my initial thoughts on the build. We didn’t have the most pleasant experience. It took two years to complete a very simply designed duplex!

18 months on, I thought it appropriate to offer a follow up to my initial observations. How has the new construction rental property performed in relation to our other assets? Would I do it again? The bottom line is most of the initial assumptions we made about the inherent goodness of new construction versus pre-existing proved valid. We would definitely build again, albeit choosing a builder much more carefully!

There was a lot to be learned over the past 18 months.  I’ll share our experience placing a new construction duplex into operation and summarize thoughts on new vs. existing.

Warranty period. Just like a new car, a new house has to get broke in. Although struggling with project management during the build, throughout the warranty period our builder delivered. We had a handful of relatively minor warranty items in the first 12 months that the builder responded to quickly and repaired without question. I can’t imagine building a rental or primary residence without at least a 12-month warranty period!

Expect the unexpected. While the home turned out nice and only had a few kinks to work out, the refrigerators I purchased from the local big box were a nightmare! These were higher end models, stainless steel finish from a major American company. Both were lemons! Fortunately, both failed in the first year while under warranty and the company replaced one and repaired the other. Although it worked out in the end, there was a whole slew of drama for months, moving in temporary fridges for tenants use and dealing with the manufacturer service department. Needless to say, I won’t be buying that brand again!

A lot of maintenance in the first year. One of the major assumptions about building new is the property will be maintenance free; this proved absolutely false during the first year! That being said, I would call it a different kind of maintenance rather than that of the routine landlord sort. In addition to the aforementioned warranty calls and refrigerator nightmares, I found myself spending more time during the first year at this new construction property than at our other 20-year-old properties!

We found that the dryer and bath vent outlets were positioned such that they made excellent homes for barn swallows! After running off a family that had set up household, I installed pest guards over the four vents. Another maintenance item was the lawn. Grass is harder to grow than I thought! I spent several days on the property re-seeding, fertilizing and watering the lawn until it finally took hold. These are just a few nuances of establishing a new home on what was previously a vacant piece of land. Definitely something that must be considered.

So, would I do it again? Absolutely. All of the “settling” if you will, occurred within the first 6-9 months.  Since then, the property has been worry free (I am knocking on wood). The new construction duplex is our top performer due to the new building premium we are charging on the rent and the great financials we ended up with on the build.  

I’d sum up our experience building by suggesting two key points. One, as discussed in my first blog on the topic, choose your builder carefully. We came out great in the end but have more gray hairs and wrinkles now than we should. Second, a new construction home just contains more unknowns than an existing, seasoned, multifamily property that’s been in operation for years. Unknowns are certainly stress inducers for an investor, but overall, the benefits of the higher rent, maintenance free (after the break in period) are certainly worth it.

It comes down to homework. There is a ton of homework that goes into purchasing a rental property. I believe the homework is double when building new! In our case, we didn’t know the homework we needed to complete. All that being said, building new rental properties is absolutely worth it!

Looking for a good how-to on wealth building? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truth’s to Build Wealth on sale now at Amazon!

Interested in rental property investing? Look for “Collect Rent, Don’t Pay It: A Beginner’s Guide to Rental Property Investing” on Amazon to learn how our family turned rental property investing into a successful side hustle!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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