The Case Against Buying New Construction

The popularity of new construction homes cannot be denied and new costruction is especially common in Playa Vista, a newer overall community. Who doesn’t want to be able to move right in without doing any work, never use a stove that used to cook someone else’s food, never use a toilet that someone other than your family has used, never sleep in a bedroom where other people have…uh..slept? While this plug and play, sanitized experience is understandably tempting, it is not always the best investment.

There is a well known saying that a new car loses value as soon as you drive it off the lot. This is true because it ceases to be a new car, which, even if no wear and tear occurs, it becomes no longer a viable option to new car buyers. A house is the same way. A new house immediately loses some of its luster as soon as it is occupied for the first time since, as with any asset, when a significant percentage of the market disappears, value goes down. For this reason, a house depreciates sharply immediately and continues to depreciate, albeit more slowly, over time until improvements are made. The only saving grace for a house that a vehicle does not have is that the land owned along with the structure historically appreciates much faster than the structure (improvements) depreciates. However a “gently used” house, also known as a resale, even if newer, does not experience that immediate loss of newness and thus value, therefore all things being equal, a resale home should outperform a new home in appreciation.

Everyone has heard the real estate mantra of “location, location, location.” Another well known saying is that you should buy the worst house on the best street. No one says you should buy the newest house no matter where it is located. While embarking on remodeling can understandably be intimidating, the worst house on the best street gives you the opportunity to add value, which, if smartly done, can add value in excess of what is spent. A new house is probably already at its peak, so purchasing it forecloses (pardon the pun) on the ability to add value, minimizing your investment potential. An experienced realtor can generally make remodeling suggestions to maximize ROI and put you in touch with reliable, honest contractors or vendors and if yours can’t, I definitely can.

Some might (accurately) say that a new home allows for minimal maintenance costs for longer than a resale home. This may be true, however the premium paid for new construction along with the correspondingly higher taxes almost always far exceeds the additional maintenance costs of an older structure. There is also something to be said of the convenience of dealing with fewer updates and repairs. If convenience is more important than money, then maybe a new construction home is the right more for you, but if you are looking for the best return on investment, listen to the mantras and choose location of newness and purchase something where your wise decisions can add value.