Buying New Construction With Hopes of Big Payoff
REM #A760
By Ilyce R. Glink
Summary: A ThinkGlink reader is considering stretching his pocket book and buying a new construction home. Ilyce explains why now may not be the best time to buy expensive real estate.
Q: My wife has her eyes on a new home that costs $380,000. Her idea is to have
the lender squeeze us into a loan for this house. Our income will barely cover
the monthly mortgage payment.
The home, which is quite beautiful, is located in a new sub-division. Supposedly, we will be able to sell it in a few years and make a big profit.
I feel this is too risky. I would like to hear your comments.
A: You don't need my comments. You already know this is a risky move that could financial derail your family.
But let’s take a look around at what’s going on in the new construction industry at the moment: Developers around the country are desperate to unload new homes and are not only offering a lot of perks and upgrades, they are dropping prices of these homes in order to get them sold.
But even that isn’t working for some developers. In the Atlanta area, several smaller developers have gone belly-up in the past year. Of the larger developers, KB Homes and Toll Brothers have seen sales slow dramatically and profits drop by as much as 45 percent. In Michigan, the economy is so bad that houses there are barely moving at all.
Yes, there are some areas where homes are selling more quickly than others. And, in a few communities, construction of new homes and new subdivisions continues.
But the years of buying a new house off the plans and flipping it automatically
for more are over – at least for now. Depending on where you live, and
what you’re buying, the down cycle could last for the next five years
or longer.
If you buy this house, and everything doesn’t go as planned, you can expect
trouble at home, sleepless nights, and a future that includes a second or third
job.
I'd take a pass.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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