Evaluating economics of a 6-plex construction in SE Houston

[Mohammed S.]

Hi all,  

I am interested in constructing a 6 plex, class C apartment in Houston in place of the house that currently stands on the lot. The contractor has given a bid for 630 K for a turn key (including the development of a retention pond). Each unit will likely fetch 1200 in monthly rent. I figure the payback is a 10 year period. Is that the right way to determine the feasibility of the project? Please advise

Thank you, Mo

[Shahriar Khan]

@Mohammed S. i would pay very close attention to you learning curve and price associated with it. 

Typical new build will have primarily 3 segments for value creation 

1. Land Development - If you buy from retail market (i.e. MLS) then probably no value can be added

2. Construction process- If this is your first time then chances of value creation for small project is highly unlikely 

3. Once its fully rented  - once you go through #1 and #2 and then wait till you rent out everything and then sell 

What i have seen is that contractor cannot provide you a +/- 10% estimate unless you have construction drawings on hand.  You cant have construction drawings unless you have a civil engineering company with you and you cant have a engineering company with you unless you have a property under contract ..

So, i would put that property under contract and then start engaging an architect to get a layout/construction drawings and once that is completed .. close on the land .. 

Not trying to negate your project but just saying that you need check your assumptions and their stress test those in your forecast before you get started. 

Good luck