Buy or Build Duplex

[Erik Dofelmier]

Looking for advice. We currently own about a 1/2 acre lot here in SC. Would it be better to build a duplex to rent out, or sell the land and hope to 1031 exchange if for a multi-family property if and when one comes available?  Thx. 

[Account Closed]

Construction costs are very high right now, but if you underwrite the financials and it makes sense, you could build some serious equity! This is a long and complicated process though, and requires you having a great team in place.

The advantage of selling the land is all the time/labor/money saved, and you could go find a property ready to cashflow NOW. 

[Erik Dofelmier]

Quote from @Account Closed:

Construction costs are very high right now, but if you underwrite the financials and it makes sense, you could build some serious equity! This is a long and complicated process though, and requires you having a great team in place.

The advantage of selling the land is all the time/labor/money saved, and you could go find a property ready to cashflow NOW. 

 Thank you. One thing that was suggested to me was to use the property I own free and clear as collateral instead. I asked a local lender and they also suggested I could use the Multifamily property I want to purchase as collateral. What are the potential pitfalls of going that route if any?  Thanks. 

[Joshua Goodnough]

Do you have a cost to build Duplex? I have a close friend/builder, he just finished one duplex and quoted me on a very nice one. 

[Erik Dofelmier]

I don't, but I'm estimating around 250 a square foot which still makes it fairly high.  

[Mack Lengel]

Quote from @Erik Dofelmier:

Looking for advice. We currently own about a 1/2 acre lot here in SC. Would it be better to build a duplex to rent out, or sell the land and hope to 1031 exchange if for a multi-family property if and when one comes available?  Thx. 

 The land does not do you much good in its current state so something needs to be done.

I do not know what the land is worth or how feasible building would be, but if you can build it, it is likely that you would have some equity in the duplex when it is all said and done. They are a hot commodity here with folks looking to house hack! I know @Jonathan Anderson has worked well with them so he would be a good resource. 

The clock will be ticking on you from the day you close with the 1031 so do not let that force you into a bad deal if nothing becomes available

[Erik Dofelmier]

Quote from @Mack Lengel:

Quote from @Erik Dofelmier:

Looking for advice. We currently own about a 1/2 acre lot here in SC. Would it be better to build a duplex to rent out, or sell the land and hope to 1031 exchange if for a multi-family property if and when one comes available?  Thx. 

 The land does not do you much good in its current state so something needs to be done.

I do not know what the land is worth or how feasible building would be, but if you can build it, it is likely that you would have some equity in the duplex when it is all said and done. They are a hot commodity here with folks looking to house hack! I know @Jonathan Anderson has worked well with them so he would be a good resource. 

The clock will be ticking on you from the day you close with the 1031 so do not let that force you into a bad deal if nothing becomes available

Much appreciated, thanks!  I’m currently working with multiple builders to get quotes. 

[Jonathan Anderson]

Building a duplex would definitely be a solid option (assuming zoning allows) and likely more affordable than buying one on market. Duplexes are hard to find in this market, especially on the MLS, usually you have to find them off-market.

Shoot me a DM, I'd love to connect and see if I could refer builders to you.

[Bob Stevens]

Quote from @Erik Dofelmier:

Looking for advice. We currently own about a 1/2 acre lot here in SC. Would it be better to build a duplex to rent out, or sell the land and hope to 1031 exchange if for a multi-family property if and when one comes available?  Thx. 

 Run the numbers, thats all that matters 

[Ke Nan Wang]

A good question for you is how much knowledge do you have in construction of a house? If you are very knowledge about construction and just need to find a builder, then it shouldn't be too hard to find the right one and negotiate a price that will work for you and the builder. Once the project is done, you should have good amount of equity right away. And you should enjoy a good period of maintenance free and low insurance premium cost for your investment.

If you are not very knowledgable about building houses, or building quality houses, I would ask around and have an owner representative who can negotiate on your behalf (it can be a family member or trusty friends who have credible experience in the industry, or hire a third party professional such as a reputable architect/engineer). This is assuming you plan to build a quality house that's gonna be a very comfortable home for at least a quarter century with minimum corrective maintenance. Please note when I say quality I don't mean beautiful and fancy. You can still build a quality but cost efficient house. The focus are foundation, walls, insulation, water and air tight house envelope, good windows/doors and a solid roof. 

All the money and work done upfront (due diligence, design, hiring the right representative to cover your weaknesses) in new construction will pay off big time in the future. It's very easy to fall into the "cheap" quote trap when we are talking about quarter million dollar contracts. 

To us, we rarely buy second-hand houses anymore unless it's absolutely at a killer location. I trust ourselves to build quality houses and it's money well spent. 

[Erik Dofelmier]

I appreciate the input and advice so far. Thank you. As of now we are under contract for a duplex with established tenants.

 That said, I think we are leaning towards building the duplex on the land as the numbers (at first glance) seem to make the most sense, and we are in the process of working with various builders on quotes.