Residential construction is on the rise in 2012, with the industry experiencing the highest growth in residential sales it’s seen in more than 30 years.
According to the U.S. Census, building permits for privately owned homes rose to an adjusted annual rate of 715,000 in April 2012, a 23.7 percent increase from April 2011, when there were just 578,000 permits issued. And May 2012’s numbers are the highest since 2008.
With the housing market in recovery mode and new residential construction on the rise, a unique opportunity exists to take advantage of what are still comparatively low material and labor costs while enjoying accelerating appreciation. Whether it’s a new home, addition, vacation home, or a commercial property, analysts agree that those who build now will realize the highest return on their initial investment.
Along with this upward trend, material and labor costs are also expected to increase, making today the perfect time to take advantage of this economic opportunity. Not only will you save money short-term in construction costs, but by building now you’ll make an investment that will yield a much higher return over time.
With markets such as Florida and Las Vegas aside, one of the most stable nest eggs an investor can choose is real estate. Large, tract-style developments have had more bubble-like risks in the past decade but one-off, unique, high quality homes expose investors to much lower risks. Compared with other options, including stocks, IRAs, and CDs, investing in real estate has been proven to outperform on many levels. Comparing the numbers, real estate continues to be a better choice in investing your money than the stock market, especially with recent market performance returns in mind.
There are many benefits to investing in real estate, including leveraging your mortgage to amplify your ROI, the consistency of real estate compared to the volatility of the stock market, and bigger breaks on your taxes.
According to a recent article from CNN Money, “If you (or your mutual fund) hold a stock for more than a year before selling, then you owe only a capital-gains tax that tops out at just 15 percent. Second, you can offset any investment losses you realized against your gains on your income tax return. Real estate, by contrast, delivers a battery of tax benefits, especially for your new home, says Ronald Hegt, a senior tax partner at Hays & Co., a New York City C.P.A. firm. You can deduct mortgage interest and property taxes yearly. And when you sell your house, the first $500,000 in profits are tax-free (for individuals, the first $250,000). You are on the hook for long-term capital gains taxes for any extra profit, but the top federal rate is only 15 percent.”
Interest rates are lower than ever and material costs are remaining relatively steady for now. General contractors are available and hungry for any work they can get, coming off of a two-year building slump. “(According to the National Association of Realtors) in April 2012, homes changed hands at a record pace of 7.2 million per year, at a median price of $206,000, up 15.1 percent from a year earlier. The last time home prices rose so fast in one year was in November 1980, when prices shot up 15.6 percent,” says Forbes Magazine.
Making the wise choice to invest in real estate this year remains one of the best ways to make sure you get the best possible return on your investment and building a home with a differential — something that sets it apart from other homes on the market — enhances the return. Unique homes are often sold for much more than comparable homes in the same area. Homes with one-of-a-kind features, energy efficiency, and brilliant architecture are providing the best return for home builders. Building your home with energy efficiency at the forefront is a great way to set your investment apart while keeping your heating and cooling costs low over time.
“When it comes to long-term return on a real estate investment and new residential construction, unique differentials, such as energy-efficiency, solid construction and, as always, outstanding location are what make the greatest impact,” said Bryan Warren, owner and principal broker at Warren Real Estate, an independent real estate company located in Ithaca, New York. “Homes that both inspire as well as provide a return on investment and energy savings throughout the year are going to lead the way through the coming recovery.”
Energy savings can be realized by considering passive solar energy, choosing the right windows and doors, and using insulated concrete forms or structural insulated panels (SIPs) for the home. SIPs also have the added benefit of cutting installation time by as much as 58 percent on the build. With R-Values on SIPs alone ranging from 16-57, SIPs see minimal heating and cooling costs when compared with traditional stick-built homes. The idea that a home’s built-in features can drop their monthly utility bills is a huge draw to potential buyers.
In addition to building “green,” adding an architectural novelty to your home will pack your investment with a high-quality differential, bringing your return even higher. Features such as outdoor kitchens and patios, or unique architectural styles such as post and beam, or timber framing, provide an aesthetic appeal that will lure in potential buyers while providing energy efficiency with the addition of SIPs to enclose the structure. Exposed timbers, quality materials and cathedral ceilings are features that bring your real estate investment the distinction it needs in order to thrive in a growing economy.
“We’ve noticed a promising increase in the number of inquiries about our timber frame homes in the past year. People aren’t just looking for a typical home anymore. They want something different, something that sets their investment apart from other homes. “Modern timber framing provides the perfect marriage of old-world romance and modern technology creating a spectacular home that easily out-appreciates more conventional architecture.” said Pat Seaman, owner of Woodhouse Timber Frame Company in Mansfield, Pennsylvania.
For those looking for a strong long-term investment, this is the time to choose new real estate. And if you’re choosing to build, there has never been a better opportunity to engage in a relationship with your architect, builder or home design/build company.