Multi-Family Invest or Build?

Question

Hey BP,

I'm looking at a market that has a high demand and low supply of rent.

I'm curious about looking at the cost of new construction vs. investing in existing multifamily housing.

1.)  Where should I start?

2.)  What are the key numbers that should be considered?

3.)  Who should I talk to about it?

Samuel DeMass · Answer

Thanks @Joe Fairless!

Your point about job diversity is well taken.  I am cognizant of the lack thereof in my particular market.

The specific market I'm looking at had a large employer move in for the visible future.  There are a couple other industries in town, but the most recent has caused a significant right shift in the demand curve.

It is apparent to me that whether buying or building you're investing your capital into the chosen market.  Therefore my question revolves around whether building would provide a competitive advantage for the property thereby putting it on the top of the property food chain.  Even if there is another shift in demand, the top of the market will be filled first (if price points are adjusted).  (i.e. The newest/nicest units will always be rented at their price point relative to the adjusted supply/demand curve)

Thank you for your thoughts!

-Sam

Joe Fairless · Answer

@Samuel DeMassyou can start by looking at vacancy and rent increase year-over-year trends because those two things will help you determine if there is high depend and low supply of rent.

You'll also want to understand the WHY behind the vacancies and rent increases to see if you think it is sustainable. One thing to look at is job diversity. For example, you want a city that doesn't rely on only one industry - unless you're a gamblin' man.

It would first do that research. Then I would speak to local property managers, agents and residents to get a sense of the market.