Better to Build or buy?

7 Replies

Is it a better choice to build or buy.

In the future I’d like to build an 8 unit apartment building. Although I wanted to get some valuable feedback from people that have experience.

I know that location is key. My question is this, is it better to build or buy when it comes to housing.

@Justin Reader , you're going to get a wide range of answers on this. Here are some thoughts:

1) In most parts of the country it's cheaper to buy than to build.

2) The 2021 housing market could be a buyers market.

3) It will depend on what your goal is. If your goal is high end apartments, you may be better off building.

4) What about a BRRRR?

5) Evaluate the needs of your particular market to see if you  can get a sense for which direction to go.

Hope this helps,

Is it a better choice to build or buy.

Good

Build you can to what you want and tenants like newer places so you may get a premium on rent. You can end up with a lot of equity quick.

Buy you get pretty certain cash stream TODAY.

Bad

Build - In Portland, it may take 2 years and $25K/unit to build.  You won't get cash out for 2 years

Buy - You never know what mech issues or how certain the numbers are?

In sum, if you do NOT have experience building, learn first.  Whole can of worms.

@Justin Reader Wow, deep question that has a lot more "it depends" than just the surface questions. But surface answer, better to buy than build. But we couldn't find anything to buy, so we built. My husband and I have experience building and have found a sweet spot of building duplexes with great financing in a town where we know the building department and have a good breadth of subs. But I hope lumber prices go down soon and you'll never avoid all the permit and impact fees. There's a reason why everyone doesn't just build, it's harder and longer and more complicated.

Originally posted by @Justin Reader :

Is it a better choice to build or buy.

In the future I’d like to build an 8 unit apartment building. Although I wanted to get some valuable feedback from people that have experience.

I know that location is key. My question is this, is it better to build or buy when it comes to housing.

Real estate is hyper local. New generally sells and rents for more depending on location but bottom line It's all about cost and inventory. Generally is best to build if it's cheaper than existing homes in your market or if there are no homes for sale. Right now in some areas replacement cost is higher than resale and finished lots are scare so buying existing can make more sense in those areas.

You need to have good software to analyze this as it's local specific. There's a certain zip code (for example in CO) that builds is much better than fix-n-flip or buy. The keyword is what Greg mentioned above. 

Buying is a lot easier when dealing with variables. Fewer and easier to understand. Building adds about 100x more complexity. You need to have capital and final payout to justify the effort. I've seen a lot of half finished construction projects and they sell for pennies on the dollar.