Should you start your own ‘Monopoly Project’? Should you start acquiring rental properties? In this series we examine the ways to start your own “Monopoly Project” (TMP).

In our first post of this series, we explained the first thing you should do is to get into shape – Financial Shape. Then we showed how and why we started our MonopolyProject in ‘Start Your Own Monopoly Project – Step 2: Our Way’. Then we explained a method you should never use: Step 3: OPM – Other People’s Money.  In “Start Your Own Monopoly Project – Step 4: House Hacking – Joey Sleeps in the Sink” we took a side street and looked at “House Hacking”. Then we looked at ‘Step 5: Get A Partner.’ We talked about buying an existing home in “Start Your Own Monopoly Project – Step 6: Get Back to Reality”. Then we backtracked in “Start Your Own Monopoly Project – Step 5a: The Perfect Monopoly House” to define what we consider ‘the perfect monopoly’ house.

Now we will talk about the advantages of buying a new-build home that doesn’t even exist when you buy it. The advantage of owning a current residence and wanting to do a TMP is that you can use owner occupied financing to borrow at the lowest rates with the least down payment. Besides buying an existing home and renting out your current house, you could buy a newly built house. The market for new builds is super-hot:

“New-home construction activity soars to highest level in over a decade, as builders rush to produce single-family homes.”

“In the midst of pent-up demand fueled by pandemic restrictions, builders have repeatedly raised their prices or capped their sales numbers in an attempt to temper the insatiable consumer desire for homeownership. Still, buyers keep coming — drawn by low mortgage rates, which allows for greater buying power, and the option to move away from city centers due to increased teleworking.”

‘“Demand is so hot right now that campouts are back at select communities and some builders have reported hitting the best weeks and/or months in the history of their companies,” said Ali Wolf, chief economist at marketing and research firm, Zonda.’

There are significant financial and lifestyle advantages to buying a new build house as compared to an existing house.

FINANCIAL: Typically, you can purchase a new home with a small deposit (e.g, 1% or $2,000 deposit for owner occupied or $5,000 for investor) until the home is built. This could take 4 to 9 months. That works to your advantage as the ‘house’ is appreciating during the build period. You only must come up with the down payment and loan at the end of the build. You have 4 – 9 months appreciation built into the process. For current market conditions, this could be $20,000 to $50,000 in equity or more in your pocket. And low-down loans are readily available for new home builds. The builders typically offer financing and help significantly with the closing costs.

LIFESTYLE: New home builds typically have nicer amenities for their communities such as swimming pools, clubhouses, tennis courts, playgrounds and more. They also offer the option to customize your house. But be careful as this can add significantly to the cost. Another advantage is you can pick the location so that it is better for you. For example, you could be closer to work saving on commute time. Or closer to family.

Here is an example of friends of mine. They had outgrown their existing home and were looking for more space. Unfortunately, they could not afford to buy in the same neighborhood due to price appreciation. And he was spending 40 minutes a day, one way, to commute to work. So, they bought a new build home, closer to work. The home will be completed in six months. They put $5,000 down as earnest money and arranged financing through the builder. Financially they will have $30,000 to $50,000 equity at move in, be able to rent out their existing house with positive cash flow and are credited $5,000 towards closing costs. The lifestyle advantage is that he saves one hour commute time each workday, they get a bigger house (50% more square footage), and the new community has a massive waterslide/swimming pool for their three children.

We (Jim and Jeff of TheMonopolyProjectTwo) are also interested in this strategy. We are actively pursuing new home builds in Casa Grande:

Financial1: After qualifying for the loan, you only must put down the earnest deposit. In the meantime, the house that is being built appreciates in value. Typically, the new home builder raises the prices of the houses as the development is built out. So, it is best to be first in line, buy at the beginning of that development.

Financial2: The new home builders offer incentives if you use their services such as lenders and title companies. The question is whether you are really getting a good deal.

Non-financial1: The home will be move in ready. No need for repairs.

Non-financial2: We can “watch” the house being built. Jeff is an expert at this since he was VP of new home for KB when he first started in real estate.