One of the Best Types of Rentals Just Got Cheaper

0:00For the first time in years, the price of a newly constructed home is now lower than the price of an existing home. And builders are even sweetening the deals with rate buy downs and seller credits. And this makes new construction an interesting option for investors for the first time in a very long time. But it's not for everyone. There are important regional differences. Not all construction is the same. And you really need to know how to find these deals, how to negotiate the best deals. And so today we're digging in on this new opportunity in new construction.

0:41Hey everyone, welcome to On The Market. I'm Dave Meyer. Thank you all so much for joining me for today's episode. This is actually a topic I've been thinking about making an episode on for a while. I've been dabbling in it a little bit here and there, looking at deals myself in new construction. But I haven't made this episode because honestly, for a really long time, I would have never recommended new construction to investors or people in the BiggerPockets community because there's just too much of a premium. Ordinarily, it just costs way too much to buy a newly constructed home. The rents aren't that much higher.

1:19And so the math just doesn't really work out. But in the last couple of years, we've seen this interesting phenomenon develop, but it's only sort of gotten more pronounced, the opportunity over the last couple of years. I find myself looking more and more at new construction listings. I've toured a couple of new construction homes recently, haven't pulled the trigger, but have gotten pretty seriously interested in them. So I wanted to share with you why I think this is such an interesting asset class and help explain what types of investors this might make sense for, and if you are one of those investors, how to actually go out and buy one of these deals.

1:57So that's what we're doing today. We're going to start first with the opportunity. Just share with you some information and data here. As of Q2 2025, the median price on a newly built home was about$411 ,000. Meanwhile, the median price on an existing home, a lived-in home, a used home, if you will, was nearly$430 ,000, meaning that buying a newly constructed home in the United States is now about$18 ,500 cheaper than buying an existing home. Now, of course, there are regional differences, but this is a crazy stat. This is not something that normally happens. In fact, there was one time back in 2021 where these sort of touched together, but I was looking at data from the National Association of Home Builders who tracks this kind of stuff, and it goes all the way back to before the crash in 2007.

2:55And there has never really been a time where this has happened. There has been times where it gets close, but these lines have never really crossed until the last couple of years. So we need to ask ourselves if we're interested in this. Yeah, that's great on paper, but we need to talk about why this is happening too to figure out if this is actually as good of an opportunity as it sounds like. The main reason why prices are going down has to do with inventory and just varying inventory dynamics with the existing home market and the new home market. Basically, builders have a very different calculation about inventory than homeowners do.

3:35Think about how their business model works. These are big national builders. And of course, there are smaller builders. But when we talk about this trend that's developing, it really comes down to these publicly traded companies that are building thousands, tens of thousands of homes every single year. The way their business model works is almost similar to a flipper in that they have to permit, build, and dispo these properties as quickly as they possibly can. They do not want a lot of inventory sitting on their balance sheet because this business is super capital intensive. They can't just go out, maybe even if they have a sub development, right?

4:15They're going to build a thousand homes. They can't go and build all 1000 of them at a time. Yes, for logistical reasons, because there'd be a lot of construction work, but also for capital reasons. It would be extremely expensive to go out and build 1 ,000 homes, buy all the materials, pay for all that labor all at once. And so instead what they do is they often build in phases. You see this all the time in sub-developments. They'll build phase one, it's 200 homes. Phase two is another 200 homes, and so on. And they need to sell the homes from phase one to get to phase two. They need the money back that they have invested into those new construction builds to get it back and to move on and keep their business growing.

4:57And this means that they are incentivized and willing to work with price or seller credits or rate buy downs or whatever the incentives is to move those properties and get them off their books. Now, of course, this is very different from homeowners. We talk about on this show all the time. The reason the market is in more of a correction right now and not in a free fall is because there's no forced selling in this market. People, whether they're small investors or homeowners, right now have the choice of whether or not they want to sell. And right now, it's not the best time to sell. It's definitely one of the weaker times it has been to sell in the last three or four years for sure.

5:36So a lot of people are just choosing not to. They say, you know, it's too expensive to move or I'm not going to get top dollar for my property. And so I'm just not going to sell my home. And that has limited the spike in inventory in the existing home market. So think about these two things happening at the same time. Existing homes, you don't have people who are desperate to sell. Some people are, sure. But, you know, in a broad big picture sense, they're not just fire sailing their homes or offering big dissouts. They're still trying to get top dollar. Meanwhile, builders, they just got to move this inventory so they can move on to the next thing.

6:11And they are willing to give concessions, whether that's in terms of price or rate buy downs or whatever. And you see this reflected in the inventory data. One way that we measure inventory is months of supply. The higher it is, the more inventory there is. And for existing homes, used homes, it's 4.6 months. whereas for new construction it's about 7.6 months as of September but before that it was actually closer to nine so the average over the last couple months is eight eight and a half so significantly higher than existing home sales and this is exactly why we're seeing this flip in the trend now if you're wondering does this spell trouble for builders are they in trouble and they're going to be losing money that is hard to say but so far the data I could dig up points to no.

7:02I couldn't actually find data for 2025, but when you look at data from 2020 through 2024, there is some studies from the National Association of Home Builders, again, that shows the gross and net profit margin for builders. And it went up a lot in 2022, 2023, 2024. That suggests they have the ability to lower prices or to offer concessions and still turn a profit. It means their margins may go back to 2020 levels or 2017 levels, but they were still making 18, 19 % gross profit margins. During that time, their net profit margins were at 8.7 % as of 2023, but normally they're in the seven, seven and a half range.

7:47So they might go back to those periods, but they're probably willing to do that as long as they're still selling homes and moving inventory. And the good thing for the home builder industry is that's exactly what's happening. They are seeing inventory move, especially in the last month. The average over the last couple of years has been an annualized rate of about 700 ,000 homes, give or take it fluctuates a little bit, but it's been relatively flat around 700 ,000 homes per year. As of August, 2025, that annualized rate spiked to 800 ,000. So this suggests that there still is demand. Demand just went up.

8:23We saw like a 10 % spike in new home sales in August 2025. It's only one month of data. Always want to caution that those aren't trends. We need to see if this is an anomaly. But it is interesting to see this big spike in home sales because they're offering incentives and there still appears to be buyer demand. And so that suggests that this trend may continue into the future, which is what makes it a potentially interesting opportunity for real estate investors. We do have to take a break, but when we come back, I'm going to talk about why this is such a good opportunity for real estate investors and how you can potentially jump in.

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11:21Try Quo for free. Plus, get 20 % off your first six months when you go to Quo.com slash on the market. That's Quo.com slash on the market. Quo. No missed calls, no missed customers. Welcome back to On the Market. I'm Dave Meyer. Thanks for joining us today. to hear about the potential opportunity that exists in new construction these days. Again, this isn't something that is normally that appealing to real estate investors, but I want to talk a little bit about why small, regular mom and pop real estate investors, people with modest portfolios like you and me should consider this. Not saying everyone should do it, but it is at least worth thinking about because the numbers kind of make sense.

12:02So here are a couple things for you to think about. First of all, the lower all-in monthly costs. Your just expenses on paper and into the future are likely going to be lower. So the first thing is, one, the prices are lower. That's just going to make your costs lower because it costs less to buy these homes. Now, of course, that's going to vary market to market, but we're just talking on a national level. And I dug into a couple of markets in Florida. I looked in Oklahoma a little bit, in the Carolinas. And And this is true. In a lot of places, you can buy new homes, comparable specs, comparable size at a cheaper price.

12:41So that's going to be cheaper. The second thing really comes from these concessions. Builders right now, in order to move this inventory, because we are in a slow market, generally speaking, they're often buying down rates. Sometimes they're buying points. So you have a permanent buy down. Other times, they're temporary buy-downs, one, two buy-downs, one, two, three buy-downs, which lower your costs for one, two, or three years. They are also closing cost credits that you can save money on. So all in all, your monthly payment on a new home could actually be lower than an existing home that is incredibly attractive.

13:18The reason it's so attractive is because they're not necessarily apples-to-apples comparisons. when you buy an existing home, you are buying something used, essentially. It's like the difference between buying a new car and buying a used car. When you buy the used car, there's stuff that's probably going to go wrong. That's been a little bit worn down, even if it's taken well care of, like well taken care of. There's just wear and tear on things that happen. And that means your CapEx and repair costs are going to go up. Meanwhile, when you buy new construction, a lot of them have warranties. I know people have differing opinions on the value of warranties, but a lot of them do have warranties.

13:56Most of them should have very modern systems that should reduce any near-term costs. You're going to have a brand new roof, right? You're going to have a brand new hot water heater. You're going to have a brand new HVAC system. You're going to have new appliances. Some people might say that those will break sooner. I am one of those people that tend to agree new appliances suck and they all break faster than the old ones. But overall, you are very likely to have lower capex and repair costs, at least for the next couple of years. When you combine that with the lower cost of your mortgage payment, so you're going to have lower expenses.

14:29Then you have to consider the rental side, because if you are a renter, all things being equal, if you're looking for a 3-2 and you have an existing home that's worn in, or you have a 3-2 that's new construction or recently built, you're probably going to want to live in the new construction. And so that means you can potentially command higher rent. Now that's really going to come down to location. You know, some of these giant, massive subdivisions in the middle of nowhere aren't going to command higher rent, but there are areas if you buy right, and we'll talk about that in a little bit where you can actually command higher rent on new construction.

15:06And so when you combine these things, you look at potentially higher rents, definitely lower costs, You are going to make better cash flow potential. And as a real estate investor, that's what you're looking for. That's why it's such an interesting opportunity. You're getting this newer product. You're getting new systems. You're getting energy efficient, smart home features, all these things that people want that you probably want in a home that you can't get with existing homes, and you're getting it at a cheaper price. Just to hammer this home, I want to give you an example using real numbers.

15:36Right now, existing home average price is$423 ,000. If we assume we're putting 20 % down, getting a 30-year fixed, right now, probably get, you know, if you're an owner-occupied, I'm just going to use the rate 6.5%. That's nice and round. Your principal and interest on your mortgage payment is going to be$2 ,140. If you bought a new home with the median price of$410 ,000 with, let's just say there's a, you know, you get incentives. Let's say you negotiate it down 5%. I don't know if that's possible. Let's say you get it for 390. Just as an example, you get a rate down of one point. That way you get your P &I down to$1 ,770.

16:16That's a difference of$370 per month. That in most markets is the difference between a strong cash flowing deal and one that you just wouldn't buy, right? Just imagine that you could get, I don't know,$2 ,500 a month in rent,$2 ,700 a month in rent on that, you can definitely cash flow potentially really well, depending on taxes, insurance, other stuff in your area. Again, also with those lower repair and CapEx costs. And of course, this is just an example. In some markets, you are seeing discounts of 5%. In other markets, you are seeing them really loaded up on concessions. It depends on the location.

16:56It depends on the builder and the incentives they're offering. I'm just trying going to give you an example that you can legitimately lower your expenses by meaningful amounts if you buy these properties right. Now, buying right, of course, depends on locations. And when you look at new construction opportunities, they're not really spread throughout the country equally. You see them in high demand markets. I think you could probably guess, well, we see them in Texas. We see them in Florida, the Carolinas. You see them in the Sunbelt parts, you know, Vegas, Nevada. You also see them in Oklahoma.

17:29There are areas of Ohio that they're building a lot. And that is a really interesting dynamic because you're going to have a tradeoff here, right? This is where more inventory exists and where they're willing to offer concessions. But that's probably because demand isn't that high right now, right? They're not giving concessions out of the kindness of their heart. They're giving concessions because they need to incentivize people to buy these homes. And so what happens is in a lot of these markets, you are going to see some of the biggest corrections, right? Like markets like Austin, San Antonio, and parts of Houston and Dallas, not all of those metro areas, but parts of Houston and Dallas, they're seeing corrections, but they have tons of inventory on the market.

18:12Same thing with Phoenix, Tampa, Orlando, you know, areas of North Carolina, we're seeing the exact same thing. And so you're having this dynamic like a lot of the rest of the country where there's more inventory, more opportunity, but these markets are seeing some of the biggest corrections in the country. So as a buyer, you really need to be discerning. You can't just buy anywhere. You need to focus on really good locations, even within these markets. And think about competitiveness. You need to identify areas where you can buy a new build, where you're going to have strong renter demand or resale value demand in the future.

18:51And that's going to depend on the same things that always matter when you're buying a property, access to amenities, desirabilities, school districts, that sort of thing. So I think it's really just up to you. Like some people, if you're really bullish on Orlando, like you should go and just find the best property in that area and really negotiate hard for the best incentives you can find. But, you know, there's a correction in that area. Or you could also target markets. Like I saw some in North Carolina or in Oklahoma, for example, where the markets are somewhat flat, but there's still inventory.

19:26That might be a little lower risk, but a little lower upside. So that's really up for you to decide. But just as a reminder, these deals aren't available everywhere, but you can Google this and find out where this kind of inventory exists. In terms of strategies and ways that you can use these properties, I think they're pretty standard. This isn't really all that different than buying a traditional rental property. So I definitely think that long-term rentals work. Generally speaking, this is not true everywhere, but generally speaking, you want to target like friendly family subdivisions. You know, there's a single family rentals.

19:59They're usually bigger homes. They appeal to families. So you want to, which to me is great. It's a great strategy. You can find tenants who will hopefully stay a long time. So long-term rentals definitely work. These definitely work for house hacking for sure. You can buy as an owner occupied with a builder buy down. That's going to probably get you even a better rates. Then you can convert it to a rental later. And I actually, when we were on the Cashflow Roadshow in Indianapolis, I went to sort of like this, it wasn't a build to rent community, but they were buying a lot of infill in this one area in Indianapolis, which is a good market.

20:34And they had a lot of duplexes. And I just thought that was an awesome opportunity for house hacking. You know, this kind of deal, it would do a little better than breakeven probably if you did it as a traditional rental. But this kind of deal, if you bought it as an owner occupied, living in a brand new side-by-side duplex, that's a really intriguing option. I've actually even seen some build-to-rent fourplexes that work well at current rates, but with incentives and owner-occupied, they can be amazing. So I should mention that for both of these. They don't just have to be single family. A lot of these build-to-rent communities have duplexes and have fourplexes that you can buy as well.

21:12I would just, when you're looking at those things, again, think about rent or demand. Because one thing that always worries me about these big subdivisions is if there are 100 rental units that look exactly the same, how do you compete? And if there are going to, you know, if there's a decline in rent or there's adverse economic conditions, like how do you compete with your neighbors? If they start lowering their rents, you might be forced to lowering your rent. So that's something to think about in these build to rent communities. All things being equal, if it were me, I would choose new construction in infill, not in massive subdivision for that very reason.

21:49But there are pros and cons to both. Other things you could do, you could definitely do short term rentals or midterm rentals with these kinds of things. I basically think it works for any type of long-term buy and hold sort of strategy, as long as you're really testing demand. Like you need to know who wants to live there, who wants to rent there. And if it works in your neighborhood, new construction can work as well or better than existing homes in a lot of these markets. We got to take one more quick break. But if this opportunity sounds intriguing to you, I'm going to walk you through a little bit of a playbook on how to identify, negotiate, and execute on these kinds of deals.

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