If you’re developing a core real estate investing strategy, you might have heard about the build-to-core method. The build-to-core method begins with establishing an investment property and building it from the ground up. Then, you’ll hold that investment with the hope of long-term returns. This will allow the investment to stabilize.
A build-to-core investing strategy helps you build wealth and a high-yield passive income stream. Of course, you might not be sure if it’s the best option for you. Here are some reasons to consider this strategy if you’re still trying to find the ideal investing approach to meet your goals.
Key Takeaways:
- Build-to-core is a long-term investing strategy that encompasses all steps from building an investment to holding it.
- This strategy has a high yield and might cost less than buying an established property.
- Build-to-core is associated with lower taxes.
- Build-to-core is a strategy that provides some cushion.
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1. Building Is Often Less Costly Than Buying
One reason to consider building a property is it might be less costly than buying an asset of comparable value. For example, you might discover you can save $100,000 by building your property from the ground up, so long as you’re willing to take the time to buy the land, secure building financing, and more. If you’re willing to wait for the investment to deliver those returns, you can save a lot of money.
Ultimately, this means you can enter the real estate market with a smaller investment than you’d need otherwise. For instance, you might notice that buying a four-bedroom property in a city with a high cost of living requires an investment of around $400,000. On the other hand, you might be able to build the same type of property in the same location for just $350,000. In the latter case, you’ll start seeing returns sooner.
Building from the ground up takes some analysis and speculation, but you might find it’s a better strategy for entering a market that’s otherwise difficult to tap into. You can benefit from this lower barrier to entry.
Additionally, you might be able to operate a build-to-core strategy on a hybrid basis. For instance, you might purchase a property that is partially developed or already has a development plan in place. This strategy can offer just as many benefits as building your asset from the ground up.
2. Build-to-Core Strategy Has a High Yield
If you’re looking for a solid high-yield strategy, build-to-core delivers. The main issue is that you must be patient. During the first few years, you might see a negative cash flow and no revenue as you’re building. Once you can lease or rent the property, you’ll begin to generate cash flow. In a few years, you’ll have a stable property that brings in regular, steady income.
Because your property is so new and modern, it might have more to offer potential renters. You’ve created a more competitive product, which means you’re more likely to secure a tenant than similar yet outdated properties. You might even be able to set a better rate, seeing a better return on your investment.
Build-to-core also comes with relatively low volatility. If you perform significant analysis ahead of time and have an accurate understanding of what to expect from the market in the area, you shouldn’t expect to see much difference in the value of the asset you build.
3. You Might End Up Paying Less in Taxes
If you’ve been trying to decide between building an asset to sell or using a build-to-core investing strategy, consider that build-to-core investing typically comes with fewer taxes. That’s because you pay more in taxes when you sell an asset that has increased in value because of the capital gains tax. When you use a build-to-core real estate investing strategy, you’ll pay less. That means you have more equity to invest in other projects, and you still have a stabilized property.
4. You’ll Have Some Cushion
The build-to-core real estate investing strategy gives you some cushion for equity. Even if you lose money at first, your investment isn’t deteriorating. For example, you could spend $120,000 to build a property that is worth $150,000 when it’s complete. You have $30,000 to lose before the investment’s value is at risk. On the other hand, somebody who purchased the property at $150,000 at its worth is not going to see that same level of cushion.
In this way, the core-to-build strategy reduces some of the risks associated with the investment. While no investment is completely risk-free, you might decide this method gives you some leeway. You can take more risks that might pay off in the long run.
5. You’ll Pay Less in Renovations and Repairs
When you build a brand-new building, you’ll spend less money and time repairing, maintaining, and renovating it. Your new building won’t need the same maintenance and repairs as an older one, which means you can collect some of your return before you have to make major repairs. Greater operating efficiency will be key for your strategy. Plus, you’ll have a building made from some of the best modern materials, making your investment safer and more secure.
6. Your Property Is a Steady Long-Term Investment
If you prefer long-term investments, core real estate investing is the way to go. Build-to-core investing is very much the same, generating cash steadily. The key to ensuring this is true for your property is being certain you’ll have a tenant when the building is complete. Promotion and competitive pricing are the keys to securing a renter as quickly as possible after the building process.
Whether you decide to invest in stocks or real estate, you’ll find it helpful to have more information about investing strategies. When you develop a solid investing strategy, you improve your chances of seeing great returns. Regardless of whether you blend investment types, the build-to-core real estate investing strategy is worth considering.
Infinity Investing Featured Event
In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.