Home prices are on the rise, and it's not showing any signs of slowing down. But is that a good thing? In this post, we'll take a look at what various experts have to say about the pros and cons of each option as well as help you figure out what's best for your needs i.e. new construction vs resale.
Is the value of a new build worth it? Can I save money by purchasing an existing home? What if I buy now but don’t sell until prices go up later on - will my profit be different than if I waited? These are just some of the many questions that need to be answered before making an informed decision about purchasing real estate.
Here is a run-down of the two approaches and where you can find the truth behind them:
The best way is to take a closer look at the future of real estate market history, which shows that the average home prices rise by about 5% in the years following a period of decline. This makes it a good idea to buy now while prices are still low and falling. On the opposite side, home prices are actually on a plateau for several years before they start rising again (so you can save money by waiting). Whether this is due to an increase in demand or just more people buying homes, we do not know for sure. But we do know that no one can predict exactly when these trends will start changing direction.
In other words, long-term expectations can only be calculated for new construction vs resale if you are willing to hold on to the home for at least a decade or two. Yet, what if you don’t want to wait that long? What if you just want to make a profit right now and then sell it? In that case, it would make sense to buy a new build and wait for the value of the property to rise.
For example, let’s say you bought a home at $300,000 and sold it five years later for $500,000 (a very realistic scenario). In the meantime, you are going to make a 500% return on your investment. If you owned a bank account and invested the same amount in the stock market, then you would get just $200,000. The valuation of the house and the property itself (that’s how much it is worth today) will rise steadily over time but are not yet at their full value.
For example:
If you were to sell a property for under $300K in 5 years and it goes up to $500K, then it would be considered as a good investment because your profit margin is larger than the average return from an investment account or stock market if that rate of return was taken over an entire period of time.
In this case, the house is only worth $300K and you made $100K with that property. So if the value of the house were to go up to an estimated, $500,000 within 5 years and you had sold that house for $300,000, then your profit margin would be nice.
However, if you don’t spend that much on buying that house but still manage to sell it for a nice amount in a few years, then you will have made an even bigger profit margin. In this case, your profit margin can be defined as the difference between what you bought the house for and what you sold it for. The newer the home is, the more profit margin you will get out of it.
In addition to looking at the price of the house, you should also look at other factors like:
The population growth in that area (More people moving in to live there indicates an increase in demand.) The unemployment rate in that area New infrastructure and public facilities being built by the city government (Are they investing a lot on public facilities?)
Generally speaking, resale value is higher than new build value. Resale value is determined by putting together several factors:
Building age and condition (newer buildings are more valuable) Neighborhood status (areas with good schools and low crime have higher resale values) Number of bedrooms and bathrooms (one to three bedrooms and one to two bathrooms make up the majority of real estate sales) The type of home (house vs. townhome vs. condo vs. apartment) Lot size (the larger, the better) The property taxes on your house Neighbourhood amenities, such as transit, retail, shopping, parks, and schools in the area
By now you may have realized that the bigger the house that you buy, the more profit margin you will get out of it. And this is true only if you are buying it for resale. If you are buying it to live in it, then there is no point in buying anything more than a townhome.
