New construction is gaining some momentum in California following the burst of the real estate bubble a few years ago. Many former home owners are still recovering from their losses.
However, many new home owners are taking advantage of lower new home prices in some areas. These new homeowners, as well as property investors, account for a large number of purchasers of “turn-key” homes.
A “turn-key” home is a home that has been built, generally by a developer or company, with no pre-existing financial commitment from a buyer. Instead, it is built to appeal to a wide range of buyers and put to public sale after it is completed. It is much the same as manufacturing and retailing a product like a car.
These kinds of homes are so named because they are built to completion, right down to floors, cabinets and paint on the walls. A new owner need only “turn the key” and move in.
Turn-key homes are cropping up in greater numbers, due in part to the recent real estate market crash. Areas such as California, which were particularly hard-hit by the crash, see increasing public interest in turn-key homes.
Building such properties presents a degree of risk for the investor/developer. He or she builds on the assumption that there is a buyer out there who will pay once the house is completed.
A house that can’t be sold in a reasonable amount of time creates a loss for the developer. One that sits on the market too long may eventually have to be sold for a loss. It is for this reason that some developers stay away from the business of turn-key homes.
However, a handful of investor-developers have found a great deal of success in this market. Innovative thinking, shrewd knowledge of local markets, and an eye for design can make this a lucrative business opportunity for real estate moguls.
New construction turn-key homes aren’t just advantageous for investors. Buyers can also realize three major advantages when purchasing these ready-made dwellings:
1) A “no-fuss” new home: It can be stressful for new home buyers who have to worry about picking carpet or kitchen cabinets. Some home buyers simply don’t consider themselves particularly bent toward making decorating decisions. They prefer to leave it up to someone else. Instead, they would rather choose a new house that is finished and ready to live in.
Turn-key homes are particularly popular with bachelors. They tend to be indifferent about decorating details like color schemes and tile patterns. They don’t necessarily need or want to be a part of that process.
Property investors who intend to rent out the house also favor turn-key homes. They simply want a new house that looks appealing to renters.
2) Simpler to obtain financing: Getting financing for a residence that is being built from the ground up can be tricky. Buyers must estimate how much money they will need to complete the project. It’s not uncommon for buyers to underestimate the true cost of building.
It’s also common for buyers to decide to make changes partway through the process that end up costing more than they originally planned to spend. Buyers who build and then run out of money before the project is completed can find themselves in a financial bind.
Turn-key homes, on the other hand, are fairly straightforward. The price, once negotiated, is the final price. Even if a buyer wants to borrow extra to make changes or additions, he can still do so. The risk of cost overruns and underestimations in this case is greatly diminished.
3) Good practice for first-time new-home buyers: First time home buyers lack buying and sometimes even life experience. They don’t necessarily know what they want in a house, particularly when it comes to details like design and interior decorating.
Buying a new construction turn-key home allows “newbies” to get some market experience without the risk that comes with building. The buyer gets the new home he or she wants.
The buyer is able to then spend months or years in the home, discovering what he or she likes and doesn’t like. Eventually, that buyer can choose to sell (at a profit, if the timing is right) and build a dream home from scratch. Those years will likely have given the owner a more accurate picture of what he or she wants in a new house.
Real estate investors and developers like Scot Sandstrom of Rancho Bernardo in San Diego, CA often advise buyers to consider turn-key homes. These houses provide an economical way to get into a new construction house without the risks associated with building.
Shea Real Estate & Investment Group is a full service real estate company servicing beautiful San Diego, California. Let them help you find your dream home today!
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