Thursday, July 26, 2007

Why rehab and not buy new II

Here's more reasons to rehab and not buy new.

Over the past 15 years, the real estate market has been in an unprecedented boom. Historically, it is very rare for standard residential real estate to appreciate much more than the rate of inflation, plus a little. And that's over time. Yet until last year, even slap-dash subdivision new construction has been appreciating as well as or better than the stock market (depending upon your market).

That wasn't sustainable. Now, the folks who mistook an extremely rare and powerful real estate bull market for genius are learning that "Trump they ain't".

From here into the foreseeable future, the only real estate that is likely to appreciate much more than GDP will be improvable, location-specific, special situation properties. New construction is not "improvable", but rather "improved" and notably NOT special. That's reason number one.

In most cases, one can buy a rehab for less than what it would cost to build something comparable from scratch. That's reason number two.

Reason number 3 for rehabbing vs. buying new is that you cut out the middle men. When you buy things for your rehab, you're getting them at the best possible price that you can find. You are not paying a marked up price. Additionally, you aren't paying for the mark up on subcontractors labor and you aren't paying for a builders profit. All those factors have to be overcome when you buy new before you can make $0.01 one. Those factors also increase your risk when or if you want to refinance--if you don't have enough real equity, you can't refinance.

Reason number 4 for rehabbing vs. buying new is that things get to be the way you want them. Not the way some cookie cutter designer/builder wants them. If we want to have 2 stoves, we can design our kitchen that way. That won't fly in new construction (at least not without major cost).

Reason number 5 for rehabbing vs. buying new is that you KNOW the property is well-built because it has been there for a century and a half. With new construction, they're often experimenting on you. Many new building products fail within the first 10 years. The windows in a rehab might have lasted 100 years and with a little love and care will last another 100 years.

Do I sound like I'm selling myself?

If so, it's probably because we need ongoing validation of this decision. :O

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