One of the most popular private real estate investments in the United States is renovation. If an investor buys a home that needs to be repaired or updated, they can usually get it for a relatively low price. This is also true of foreclosure properties. The investor then hires a construction team to perform the necessary repairs and upgrades, which usually takes anywhere from a few weeks to a few months. After the construction team is finished, the property is re-listed at a higher price. Investing like this is popular due to the quick turn around time, low risk, and rates of return ranging from 8-15%.
Below is an example of a renovation project we were part of. Renovations included rebuilding the front and back yards, repairing the fence, repainting both interior and exterior, upgrading the bathrooms, upgrading the kitchen with new appliances and cabinets, replacing the floors and light fixtures, and a deep clean.
House type: Single family house (3 beds, 2 baths)
Purchase price: $325,200
Cost of renovation: $32,500
Selling expenses: $16,400
Total expenses: $374,100
Final Selling Price: $430,000
Turnaround time: 3 months
Profit margin: 14.9%
Investing in new construction is similar to renovation, but the starting point is vacant land. Relative to renovation, new construction is a longer process (usually a year, sometimes even longer), is more complex, more risky, and can cost more. The advantage, of course, is that the rate of return is greater.
Some investors who want to build new houses will find a property with a small house on a large block of land. For example, many old single story houses may be only 1500 sq. ft., but they can be replaced by 2-storey new construction with 1800 sq. ft. on each floor. The more square footage, the more profit.
However, as noted above, new construction is a more lengthy and complex process than renovation. First, finding promising land is challenging. Then, in order to rebuild, various applications need to be approved by the government to ensure compliance with all construction rules and requirements. Working with a design company and a construction company also requires a lot of attention.