Taking advantage of the strength of a local economy combined with a greater demand for rental housing means you can build a brand new rental property as an investment. Part of your decision making process considers your exit strategy. What’s the end game going to be, are you going to flipsell or rent the property or are you going to hold it and rent it out?

Real estate investors that have been in the business for quite some time will usually gravitate to one or the other over time. If property values are appreciating and it’s the costs to build compared to a major rehabilitation of an existing property then building new makes sense. So what do you do when construction is finished? It’s time to decide whether to hold or sell. You can change your mind during construction, but it’s still an impending decision you’ll need to make.

This is where you and your real estate agent need to get together to discuss strategy. If you build a brand new three bedroom home and you intend to sell it, what does your agent think the property will be worth when it’s time to sell? You want to have a contract in hand as soon as able to avoid additional financing costs. Your construction loan accrues interest as soon as each tranche is transferred. Delays in closing on the property add per diem interest to your payoff.

If you’re thinking of renting the property, compare your monthly housing expenses that include the principal and interest payment, monthly property and insurance payments plus an amount held back for maintenance reserves. Will the market rent once construction has been completed cover all these costs? If not, then you’ve likely got a sale in your future. If you’re cash flowing with your numbers, then holding and cash flowing each month is a definite option.

Still not sure? One item to consider is what happens when you select either option. If you sell, you no longer have the option of renting it out. If you decide to rent, you still have the option of selling at some point in the future while getting paid each month while you make your decision.