Buying land and building the multifamily residence???

Question

I live in a small town in eastern Arizona, about 7000 people, and we have a pretty serious shortage of rental properties. Finding multi unit properties for sale is almost unheard of. Just wondering, if buying a lot and building a duplex, triplex, or quad plex is a good option in today's market? I would not be living in any of the units as I already have primary residence in town. Any thoughts or questions? I'm still quite new to real estate investing and i'm looking for ways to get started in my own town.

Marcus Auerbach · Answer

Yes and no. Short term it is difficult to make the numbers work, the cost of new construction and the time it takes to zone-plan-build are usually the main reasons why private investors stay clear. I looked into this at more than one occasion, because Milwaukee has such an old housing stock, everything is 60-120 years old.

Most of the new apartments we see are 4 and 5 star developments with very high rents, this allows to offset the high cost of construction a little better. If you can get land for a good price and let's say build a modern quad with 1200 sqft 2 bed 2 bath units and garages for $200/sqft you are looking at about a million. If you can rent 3 units for $2,000 you are close to breakeven.

On the plus side, you will have a highly attractive asset and several decades without much cost of capex and repairs. Inflation will push up rents over time, so at some point you will be cash flow positive.

Robert Ellis · Answer

small town means small appraisals. will never get it done unless you start buidling a lot of them. I'm in Columbus Ohio and we ahve to build the same floorplan over and over and it's a group heard mentality. we build a three story walk up triplex designed for our infill lots

Jaycee Greene · Answer

@Ryan Marble I concur with the earlier comments, but would also ask if you know any of the costs/values. Do you know what the new construction costs/SF are in your market?

Stephen Morales · Answer

Being new I would suggest started with existing builds but building small multifamily in a small town with a rental shortage could be a smart move (someone's gotta do it). It’s a great way to meet local demand while creating steady cash flow. Just make sure the town is ok with the land being zoned for multi-units, and look into construction costs, financing options, and permits ahead of time. Like someone else said better to buy land that is already suited for use. Another note on construction cost, going vertical is very expensive now and would require have a great connect with a developer and a builder in the area.See what rents are in the area and run the numbers to ensure the rents will cover your costs and give you a solid return—using the 1% rule can help. Starting small, like with a duplex, is a good way to get your feet wet and minimize risks.Good luck!

Noah Corwick · Answer

The tricky part will be to get the the city to change your property's zoning to multi family (if it isn't already). This can be a very long and annoying process and you're not guaranteed to get approved. Always safest to buy land that is already zoned for it.

With that in mind, you'd also have to make sure the land you'd buy has water and electric running to it already. Buying land without this and adding the infrastructure to do it yourself will be really expensive.

Then you'll have to figure out how you fund the project (land purchase + build costs). A lot of Hard Money lenders don't like to fund on land. So you'll have to figure that logistic out.

But if you're able to figure it out and get it built, you can rent out the units and essentially BRRRR it and pull some/all of your equity out to repay your debts, yourself, and potentially keep the investment cycle going.

I would definitely talk to a contractor to understand what your build costs would look like.

Buying land and building the multifamily residence???

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