New Construction Development - Build for Sale or Rent?

Question

I live in Petersburg, Virginia and recently purchased two sides of a City block (roughly 5 acres) to develop (currently open land). It’s located 1/2 a mile from downtown and already has active renovations taking place to early 19th century homes.

My initial plan was to build 6 units on one side that are roughly 1,400sqft and then 8-10 on the other in form of a “pocket community” - single story small homes.

Given the market, I’m debating whether building homes for sale is a solid idea vs. building for rent (even completely reimagining what would go on those lots) or a combination of rentals vs. homes for sale.

Any thoughts on how best to proceed?

Pratap Koppula · Answer

Before making any investment decisions, it is important to conduct a thorough feasibility study to ensure the project is viable and sustainable. If the market is slowing down, it may be wise to consider build to rent options as an alternative. However, if the market is hot and you have some cash available, selling may be a viable option. Either way, careful consideration of the market conditions and a detailed feasibility study are essential to making the right decision.

Caleb Brown · Answer

I'd look at the #'s for both scenarios. Figure out what the resale value is. Then weigh the options. Selling would give you capital to reinvest and build your portfolio for more cashflow. Keeping wouldn't be a bad idea either. Relatively low maintenance and cap ex. Would most likely attract great tenants. I would just be curious on the cash flow side of things if it'd be worth it for you, you'd probably be able to reinvest and have a higher return.

Stephanie P. · Answer

Development of that magnitude probably has some significant zoning restrictions.  I'd start there.  Then I'd make something that conforms with the downtown to blend it in, but with modern amenities (two or three story brick rowhouses work well in many downtown areas).  If single story small homes works with zoning and that criteria, then go for it, but either way, I'd increase the square footage to 2K or so.  I wouldn't build them and keep them as rentals because you'll have too much capital outlay and the payoff is too long term.

New Construction Development - Build for Sale or Rent?

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