Building NEW multi family 25 unit

[Rick Hamilton]

What would you do?  I have the opportunity to develop/re-purpose my commercial retail store building into a 25 multi family. I have no experience with developing. The builders performa shows poor cash flow because of extensive new construction costs. (adding 2 floors complete re-purpose) The builder claims that the improvements will more than make up for the poor cash flow by improving the value of the property substantially. Should I view it as a large flip or view it from a cash flow basis? The builder and financier tell me that 1031 investors will jump at an investment like this in our city even with the poor cash flow.  Im 60 years old and counting on this for retirement. Thanks...

[Greg Dickerson]

Originally posted by @Rick Hamilton:

Bjorn, Thank you for your reply. When I speak of poor cash flow, I am talking about what I put in my pocket after everything is paid. However, the loan payments on brand new 25 unit are quite  high and so shouldn't I consider the loan payments that the project supports as a gain as well? 

The value is based on NOI before debt service. The only other consideration is location. If you have a highly desirable location you should be able to sell the property as is and use the money to buy a cash flowing asset.

These types are projects are risky unless you have serious expertise and even then things usually take longer than you think and cost more than you think.