Which is a better investment ~ new construction home or resale?

When shopping for their next home, a reasonable person may ask what the better investment is, a new home or existing home. The answer depends on a number of factors. To make the comparison between new homes and existing homes a bit easier, consider only the choice of new homes vs. recently constructed homes.

New construction offers many choices. Everything from the roofing material to the basement floor is negotiable. Builders typically start with a price for a basic home, with the assumption that every component of that home will be the least expensive or the lowest grade. From there, the buyer gets to choose a wide variety of upgrades, all with additional cost added to the purchase price. Sometimes a room can be added, a garage can be expanded, appliances can be upgraded, and the kitchen counter can be granite instead of vinyl. Floors can be hardwood or tile instead of carpet. Even bathroom sinks and toilets can be upgraded.

Which upgrades make sense from an investment point of view? This is a tough decision. If you upgrade everything, it will be hard to recover the cost when selling the home. If you proceed with low-grade materials throughout the home, future buyers will offer a lower price, with the expectation of installing the upgrades that you chose not to buy.

The advantage of new construction is not really investment value, it is the ability to get a house built exactly the way you want it.

With an existing home, the design choices have been made already. The only decision is which home to buy. Depending on market conditions, it may be possible to find homeowners who purchased every conceivable upgrade when the home was built and are now under pressure to sell. If the home was built with bare-bones materials, it may be possible to negotiate a price low enough to pay for all of the upgrades. Once in a while, there will be homeowners who overvalue their property, thinking that they are entitled to get all the money back that they spent on upgrades. In an extreme seller's market, they might get their wish. But in most cases, buyers will simply move on to other properties.

There are certain components of a home that are difficult to change after it is built. For example, consider central heat and air conditioning. Converting a home from forced air to baseboard radiators is a difficult and expensive proposition. Whether you build or buy a home, it is important from an investment point of view to look at the design choices from the perspective of selling the home right away. The investment value of a home is (roughly) the selling price minus the purchase price. If central air is customary and common in your area, expect to be penalized if your home does not have it. Even if you do not care about central air, do not assume you can find a buyer who will buy a home that lacks a feature that most other homes have. Anyone can upgrade kitchen counters or appliances, but nobody will want a floor plan that is obviously missing a bathroom.

The advantage of resale is you’ll be in an established neighborhood, and likely save thousands on basement finish, landscaping and window coverings.

If you build a home, make reasonable design choices with resale in mind. If you buy a home, avoid getting locked into unusual design choices that limit the home's appeal to potential buyers.

Author Jeff Hammerberg is the Founding CEO of www.GayRealEstate.com ~ Free Instant Access to the Nation’s Top Gay, Lesbian and Gay Friendly Realtors Coast to Coast offering FREE Buyers Representation.