To Build Units or Buy Them?

Question

Just as you’d expect, I’m looking to build properties (should the numbers work) instead of buying older buildings with questionable histories. The question here is, how many of you have done the same and how has it worked out for you? What kind of rent are you seeing? 1%, 1.25, 2??? I’ve designed a floor plan in my head that I’m ready to run with after I put it on paper. I’m assuming a 15yr window before major maintenance is due, I’m thinking $100 per foot for construction.

Nicholas Lohr · Answer

I just built a duplex.  Excuse me, I'm still building it. I started the process in April 2017. Again it's still. being. built...

I bought an existing 6-plex apartment building in February 2019. As of Oct 1 2019 all 6 units and renovated, re-rented, stabilized, and done.

Catching my drift??

Greg Dickerson · Answer

@Chris Thomas new construction can be a great strategy and generally rents first and for more. It’s all about the numbers. Every market is different in terms of costs and rents. $100 foot is very cheap and hard to build anything for that cost. Make sure to talk with some builders to get an idea of current costs. You can get some guidance on rents by talking to management companies and looking at comps in the market. I’m sure you can find some new construction rentals in your area to compare.

James Wilcox · Answer

@Chris Thomas need to look harder then. Every city suffers from vacant homes and blight, or at minimum homes that could use an update. That is very true for central KY especially. L-ville pretty much the whole west side if you want a project. lol I would not recommend it though.

Chris Thomas · Answer

@James Wilcox my issue is, there really aren’t many properties to renovate where I am at. I have been looking at Lex too though that market seems a bit over saturated with investors.. Louisville on the other hand🤔

Edgar Martinez · Answer

If construction usually ranges between 80 - 130/sf that's a really price compared to the rest of the US as a whole. But as @Parker Eberhard mentioned, there are a lot of soft costs to consider. In my area the few brand new ground up construction that's getting built or the completely renovated old buildings are really only made possible with the use of grants and tax credits. And even then, they're "market rate" apartments but I would argue what they're asking is really pushing what "market rate" means to most people in the areas they're building/redeveloping.

James Wilcox · Answer

@Chris Thomas I would find it hard to justify, in our area, to build brand new rental units from scratch for lower end. It would likely not be worth it with new building regulations, rising construction costs, time to build, and the cost to build. There is a reason why all new MFH construction is in A-class properties right now. There are grants for lower-income housing so there might be something there but I would likely find it hard to justify.

Since prices, in general, are cheaper in KY I would spend more time renovating properties and repositioning them than starting from raw land.

I have not built new construction for rental but in general for central KY price to rent ratio is around 1%.

Chris Thomas · Answer

@Parker Eberhard, yes I was worried about that. In this market construction cost USUALLY range between 82 and 130/ft. Considering these are rentals I’m hoping to keep on the low end. The land will be what will get me though I think. And I have a background as an Architect so building units larger than a 4-plex really won’t be much of an issue.

Parker Eberhard · Answer

@Chris Thomas also, with Trumps idiotic tariffs (never let someone who knows absolutely nothing about anything make decisions), material costs are going through the roof

Parker Eberhard · Answer

@Chris Thomas does that $100 sq ft include land, design fees, engineering fees, permitting fees, carrying cost of loan, any utilities that may need to be run?

I don’t know how construction costs in Kentucky are, but $100 sq ft even after all of the above mentioned have been taken out of the equation is unrealistic in most markets

Nicholas Lohr · Answer

p.s.  duplex = $250 per square foot. and thats me being the GC.

(i am in CA though)

To Build Units or Buy Them?

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