Building New Large Multi-Family - Why not?

[Cory Howes]

Over the past few years I have listened to a significant portion of the Bigger Pockets podcasts, but I don't believe that I can remember one episode about building new large multi-family apartments (10 units plus). I recently purchased a 40 acre vacant parcel in Marquette County, Michigan, and am in the planning phase on how to develop the land. We plan to do a combination of subdividing and flipping lots, but what really interests me is to create a long term cash flowing investment, as opposed to a one time sale of a lot. I realize that the cost of construction materials have gone up, but the numbers still seem to work! I have gotten a quote to build a 16 unit (32 bedroom) 2 story apartment complex, that will create a 7-15% ROI from the calculations I've done.

I'm just surprised that more people aren't looking to build new, and if they are, I have not heard much talk about it on Bigger Pockets. 

I would love to hear any insight from anybody who might be building new multi-family. 

I own the land, but my next biggest hurdle is trying to find the 20 or 25% down to build. 

[Drew Sygit]

If you own the land free & clear, the value is your down payment.

[Drew Sygit]

If you own the land free & clear, the value is your down payment.

[Barry Ruby]

@Cory Howes I’m focused on developing single family Build to Rent communities. Please let me know if I can help you in any way with your project.

[Cory Howes]

Barry, I would absolutely like to chat. This is the proposed site plan. Parcel B was initially going to be apartment complexes, but there would be great opportunity for townhomes, condos, or small multifamily apartments. The property is directly adjacent to a very popular network of biking, walking, and snowmobile trails. Maas street is the back door into Marquette. I'd love to hear what your thoughts are. We are very open to suggestions. Thanks!

[Scott Mac]

Hi Cory,

(1) Housing next to a Taconite rail line...it might sound like WWII Dresden all night long...Maybe (before you commit to build) spend 7 days and nights up there in a camper and see if it's loud and booming enough to make everyone move away.

All of those mines in that area--I'd assume 24/7 rail activity.

(2) Is this a big rental area? Enough to absorb all of the planned units quickly. What's the average time on market for a comparable rental. Will these be working poor Section-8 subsidized units, or non-working Section-8 subsidized units, or market rate units.

(3) Could you buy 16 SFH's for less than the build cost of the apartments and rent them out---less boasting rights but more cash in pocket.

(4) If you build, it might make sense to own a 7/11 or am/pm type convenience store near there if there is nothing else around.

Supply  vs demand....<--(Watch that).

(5) Can you get all of your needed trades locally and are they available for work, or are they backed up on other jobs.

(6) Is this an area the locals will want to live in, or is it "Out in the woods", no snow plows in the winter, bears sitting next to your car in the morning.

btw..the UP is a Beautiful place!

https://www.ampm.com/offers

Good Luck!

[Cory Howes]

Hey Scott, Thanks for the input.

The rail line is actually not too noisy or bothersome according to the surrounding neighbors. I spoke to a developer/contractor who put in a small development about 15 year ago on the other side of the tracks, and he said the folks buying the houses never found it to be a deterrent. 

Marquette, like many areas, is seeing massive growth. The main job industry in the area would include the mines, University, hospital, forestry and tourism, the ladder which is rapidly growing. Marquette seems to be the Missoula, or Boulder of the Midwest. It doesn't have the mountains, but it sits on the biggest lake in the world (surface area wise), and has some of the top rated mountain biking and trail networks in the US. 

Talking to realtors, over 50% of the houses being sold in the area are from out of state buyers; either investors, or people who are now able to work remotely and are moving to the area now that they have the opportunity to. 

We have looked into the Section-8 subsidized units, which there is a demand for, but there seems to be a higher demand for standard to higher end units. I don't have precise data as far as number of days rental units stay on the market, but everybody I've talked to has a waiting list, or they will receive 50 plus applicants for a decent apartment within 48 hours. I manage 15 units in the area, and If I advertise, the unit is always rented within a couple days. 

So I'd say demand is extremely high, supply is low, but I'm sure that can change rather quickly. Is there a good way to track that other than pure local hearsay?

I'd say you can 100% buy a 16 unit apartment cheaper than the cost of building right now, but I have not seen anything like that come on the market. It seems most people are holding on to them with rents going up as fast as they are. 

Contractors are for sure backed up, some out to the end of 2023 already. But luckily I have found a couple different ones who are interested in being a part of this project. 

This is right off the main "back road" or connector route from Negaunee to Marquette. It is well maintained and plowed before many of the other side roads are. 

Bears, deer, wolves, and if you are lucky, big sneaky cats are in the area, but you are lucky if you have the opportunity to see them.

Thanks again for the comments, much appreciated. If you are ever in the UP, look me up!