Buying Land to develop multifamily?

Question

Has anyone bought land to develop into a residential property (e.g. a 4-plex) using the BRRRR method? I was wondering how feasible this strategy is and how difficult it would be.

Also, does anyone know any good resources for learning about development?

Sharon Wu · Answer

I do.  My first couple projects just learn by partner with other experienced friends.  I took couple courses from Realtors Land Institute but I am not sure if you can take them if you are not a Realtor.

Bruce Lynn · Answer

@Sean Chua   Possible, but probably the most risky type of investment you can make.  Add to the risks, zoning requirements, permitting and inspections...many people reporting delays of 2-3 months to get various inspections done...like electrical rough in, plumbing rough in, and then finals, etc, so I would say double to triple your normal build time estimates, unless you know for sure where you are building is timely...some smaller cities might still be fairly quick.  So calculate that into your costs as well.   Supply chain issues still seem to be an issue for many builders with delivery delays on bricks, windows, lumber, and other components....so factor in some extra build time right now for those potential delays.

You also have to consider financing options of doing this....maybe cash for the lot....and more down payment for construction loan....so you have to have some resources to get started on this.  A lot more than buying some existing building.

My thought is smart guys like you can probably pull it off, but my advice would be don't do it.  Go after an easier project for #1-10....when you are very experienced and maybe when some of these issues are resolved.

Michael Guzik · Answer

@Sean Chua I don't mean to be a pessimist but I'm in New Construction/Development and now is probably one of the worst times to do this in my opinion. As @Dallas Hayden there are so many issues with materials, labor and all the things related to building. The ROI is still there if you buy the land right and have a team behind you to build the project. However here are the problems I am currently seeing.

1. It is getting harder and harder to find land for "the right price"

2. Trades/Labor, Materials and everything related to construction is increasing in price. Our bids are only good for 30 days and even then sometimes the cost has gone up in that time window.

3. When all is said and done when you are finished the "new" sales price is probably going to be much higher than you intended. This isn't a problem is your plan is to build and sell, but when trying to rent is the rent going to be able to keep up with the increased cost to make it worth it to you? In my market and experience the answer is probably not.

Dallas Hayden · Answer

Hi Sean,

Problems you may run into now are high construction/material costs and labor shortages. In my market, the margins on new construction are pretty tight and appreciation often isn't great enough. For the most part I stick to vacant land investments (zoned everything from office to residential and industrial). The vacant land business can be brutal but rewarding. I've been held up by a guy with an AK47 while looking for a vacant parcel...

My suggestion is to avoid diving into a 4plex for the first investment property. I'd search for a quality contractor and look at rehabbing a smaller SFR. You'll learn a bunch and your losses should be relatively small if you mess something up. Feel free to reach out if you have any questions. Good luck!

Dallas

Jared Hottle · Answer

I think possible but the key would be finding an area with high appreciation the only issue with that is will rents go up with appreciation? This likely wont happen 1 to 1 so just need to make sure it'll cash flow at a point that covers all your expenses. Probably can plan on less maintenance and cap ex though so that should help.