Hi, I was wondering what the advantages are of building a new apartment complex from scratch vs. buying an existing complex. Im new to real estate and I have heard that if your in a financial position to develop an apartment complex, you can make a lot more money than buying an existing complex. I was hoping someone could briefly explain the pros/cons to both of these options. Thank you!
Depending on the area there can be advantages to both. If there's a lot of existing housing stock, it can often be cheaper to buy an existing property than to build a new one. That's the case here in St. Louis. A new development also has higher upfront construction costs than an existing property, although an existing property will still have some (but hopefully less) rehab costs involved. There also might be existing grants for your area to help with rehab costs, but that will require research.
Building will always be more expensive than buying an existing building. Often there are new taxes on new builds that older buildings don't have to pay, like Mello-Roos (sp?) taxes. Permits, and cost of new building materials, cost for new utility hook-ups - all very expensive. Building codes will likely be more stringent, requiring things that an older building may be exempt from because of being "grandfathered-in." Plus, the time it takes to get one move-in ready will delay income significantly. An existing building will probably already have some cash flowing, or could get cash flowing quickly, too.
@Ryan McElroy I would have to disagree with @Sue K. , it is all about the land price and site development cost, if it were flat, then it should be the same. If you build the same building in the mountains or downtown, the building cost would be the same, the only difference is the permitting and utilities. If you know what you are doing, go build, if not, maybe try to build a single family first before you tackle that animal. This advice only applies if you will act as owner-builder, do your own general contracting and have good subs, otherwise, you can get a great deal with a GC or your worst nightmare project.
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