Thoughts on building a 4-8 family during these times

Rental Property Investor · IL · Member since 2019 · 285 posts · 137 votes

BP,

I'm considering acquiring a piece of land in a great location that is zoned multifamily. My plan is to build a 4 unit 2 bed/1 bath on this property and eventually build another one down the line. I own my own construction company so I can do most things at cost and there are a few corners I can cut. In this area I can probably get anywhere between 1000-1200$ in rents for a 2 Bed/1 Bth brand new. Thoughts on this? I know new construction is tough during the times we are in. Any feedback would be appreciated. Thanks.

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Arsen Atanasovski

Investor · Rochester, MI · Member since 2017 · 1k+ posts · 584 votes

All I can say is good luck! With the crazy prices of material to the “Covid excuse” I can’t work your going to have some fun building that. I would buy prebuilt and collect from day one.

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Arsen Atanasovski
Investor · Rochester, MI · Member since 2017 · 1k+ posts · 584 votes
4y
All I can say is good luck! With the crazy prices of material to the “Covid excuse” I can’t work your going to have some fun building that. I would buy prebuilt and collect from day one.
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Stephen Jones
OP
Rental Property Investor · IL · Member since 2019 · 285 posts · 137 votes
4y
@Arsen Atanasovski
Thanks for the feedback man! Precisely why I am asking the question.
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Len Grosso
Investor · Santa Rosa, CA · Member since 2015 · 18 posts · 8 votes
4y
Have you done the math? Compare the cost to build right up to tenant ready, against the cost to buy similar. Of course try to have equivalent properties as far as class A, neighborhood etc. There will most likely be a difference in operating expense since one is fresh & new.
Not to complicate things but being a builder you could consider other strategies like building an ADU to existing plex.
Sounds exciting.
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
The only chance that this works is because you can do it at cost, but that is a huge obligation on your business and no profit on that end so a bit commingled. This is the worst time I think to build ground-up for the first time with material costs and supply chain issues. In theory, building a ground-up 4-plex almost anywhere will be worth it long-term, but I would guess that the cost basis right now and toll it would take on your business won't be worth it.
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Stephen Jones
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Rental Property Investor · IL · Member since 2019 · 285 posts · 137 votes
4y
@Jonathan Greene
Great advice Jonathan! Thank you for taking the time to respond. That was also part of my thinking, the long term aspect of it.
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
4y
Originally posted by @Stephen Jones:
BP,
I'm considering acquiring a piece of land in a great location that is zoned multifamily. My plan is to build a 4 unit 2 bed/1 bath on this property and eventually build another one down the line. I own my own construction company so I can do most things at cost and there are a few corners I can cut. In this area I can probably get anywhere between 1000-1200$ in rents for a 2 Bed/1 Bth brand new. Thoughts on this? I know new construction is tough during the times we are in. Any feedback would be appreciated. Thanks.

When I see that rent point, I question if existing structures are significantly cheaper than build of a new structure. I would want to know cost to build and value of a similar existing property. Note if you cannot find a similar existing property then you have no basis for an after build value (ARV). Not having a known ARV would be a risk.
With COVID everything is slower and more expensive. You would need to take this into account.
Using 1% rule with the more conservative rent value places rent at $4k, so costs should be no more than $400k. Note you deserve to be paid for your time/effort so the fact you are doing the work yourself does not mean those costs should not be included. Also note if yo can purchase existing structures that can produce bette4 than 1% rent ratio you should not be building to obtain a 1% ratio.
Good luck
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Stephen Jones
OP
Rental Property Investor · IL · Member since 2019 · 285 posts · 137 votes
4y
@Dan H.
You make a very good point with material being much slower to get. This could be a huge headache, on top of it being more expensive. Thank you for your comments.
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