Why new construction? - Idan Avivi - Entrepreneur of the Week - Post 3

#EntrepreneuroftheWeek #RealEstate #Flips #BuyAndHold #BRRRR #Mortgage #Investors

One of my goals more than five years ago was to get into the new construction field. I was really drawn to it and always in my heart I knew that one day it would come.
I wanted to feel that feeling of finishing building a house and knowing that you were fully involved in this wonder that is going to provide a warm and loving home for the family you will live in and it will leave my legacy for hundreds of years to come .
But I knew it would not happen in an instant… I knew that in order to pick up a project like this I had to go through a few more steps along the way to know that I was doing things right. Nevertheless, there is a responsibility here for investors' money and the standard of construction.
So the first step was to do flips to start getting to know the structure of the houses, how to approve plans, familiarity with the electrical and plumbing systems and any piece of information I could gather. After all, houses in the United States are built a little differently from the Israeli form of construction and it is worth knowing how.
There were even a number of flips that would fit apart from the basics of the house we replaced almost everything. This allowed us to get to know in depth the different systems, how employee approval processes work with the municipality and how to work with contractors.
In the second stage we started to do market research with contractors, construction costs, recommendations and the like.
And in the third stage we did market research on lenders for a construction loan.
So what are the main benefits of new construction:
Already two years ago we identified in the Tampa area a significant lack of housing supply and all the more so of new construction. Today, every second article talks about a drastic lack of supply compared to the demand in the United States.
New construction in areas of demand will almost always have demand. This allows for more confidence in a future sale.
Unlike in flips you sometimes buy a house and start peeling the walls and finding surprises and braces that will sometimes significantly hurt the business plan, in new construction this of course can not happen (there are other braces but that's for another post).
If you ask a crowd of buyers they will always prefer a new construction over a second hand house as the construction meets stricter standards, the current expenses on the house are significantly less, the buyer can choose upgrades to the house and adapt it to his wishes .
As far as the bank is concerned, it is much easier to get mortgages on new construction and with today's interest rates buyers are telling themselves that if they already have a mortgage then it is better on a new one.
Profit from land development and construction entrepreneurship. We produce value and do not wait for market value increases. Many times just as a result of land development, parcelling and land division we are already with a high upside on the money and that is regardless of market forces.
Project times are very fast and can take between 8-30 months.
As an entrepreneur, the ongoing work with the investors is significantly less as the investors are passive investors throughout the duration of the project so there is no ongoing care like in house rentals and maintenance.
And of course the profit line, we have a rule of thumb that we only get into projects that will yield a minimum of 30% gross on the investment and that allows us to manage risks optimally.
In the next post I will tell how to manage risks in the best way to create a winning deal!
Successes always
Idan

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