New construction multifamily 12-15 units considerations

[Sabi Const]

Hi everyone, I would like to ask your opinion about constructing multifamily buildings. 

I have been presented with an opportunity in a town where builders are buying lots or properties and demolishing them and putting up 12-15 unit rental apartments. Then renting them for approximately $1,700 (2 bd/ 1bth) to $2,100 (3bd / 1bth). The total cost of the construction project is approximately $1,000,000. 

A few questions / thoughts... I was told that as long as the land is in contract to be purchased, the construction loan could be approved by showing renderings to local banks. I have been given requirements from 20-30% down payment and the rest financed through completion. 

If my numbers are correct, at the low end of 1700/month x 15 units x 12 months = $306k

Discounting 5% for vacancy, 10% for management company, 25% for expenses and debt servicing PITI, it seems that the return is approximately 18% per year.

Please chime in and let me know what I am not taking into consideration beyond what I mentioned above and what your thoughts might be on this type of investment 'opportunity'. 

Thanks!

[Roger Lin]

I am suspicious of the construction number too. I think you will get some economy of scale but not that much. Also, who is signing for the loan? Are you the one purchasing the land and signing for the loan? Be aware of situations where a builder who does not have two cents to rub together comes to you with an "opportunity". Someone with enough assets and liquidity will be on the loan and if you are the one with the assets, guess what? The bank is really only looking at you for the "joint and several" liability.