Rental Property Investor · Milwaukee, WI · Member since 2019 · 42 posts · 14 votes
Hello!
I am looking for some information on how to estimate what construction costs will be for a development of an 8 or 10 unit townhome style property.
I have an opportunity to purchase some land on the east side from a relative in order to build. It is 3 parcels right in a row with RT4 zoning for a total of 10800 sqft. This gives me 7560 Sqft of buildable land from what I understand (70%).
After talking to alderman's and some other developers it sounds like I can fit a 2 story 8 unit on the property, the area is class A/B
I understand cap rates and how the value is calculated, I have an idea of soft costs, but I am lost when it comes to estimated what the cost of the build will be. From there I can obviously back out equity and financing fees and figure out what I can pay for the land... that's my goal at the moment.
Looking for some insight on how to better estimate construction costs as well as an architect that would fit this project size and maybe any suggested financing structure aside from bank construction loans, which are extremely hard to come by these days.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
3y
Depends on a lot of factors. I would go a little larger on the square footage. Townhomes are a lot more valuable than apartments, but are also larger. So if you end up with 12,000 sqft you are looking at 2.6M to maybe 3M if you put parking underneeth.
The math won't work out short term, unless you work with a lot of equity. I still think it's worth owning something like this long term, especially if it is really in an A/B location.
I would agree, there is a lot of competition with the thousands of units they built on water street in the last 5 years, I think a more intimate product like a 3bd 2bth townhome with parking would be more attractive over the course of time as well as hold long term tenants.
Do you have any input on cap rates in that water street apartment area or know any good architects?
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
3y
No I don't, but I would guess sub 5, so you will be definitly cash flow negative for a while. My architects are all residential. I would actually start talking to builders, they will know the right architects.
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
3y
@Robert Damato
Hi Robert, the feasibility and performance of the deal begins and ends with the NOI it generates.
Once you have established, it's NOI, you can use it to work backwards to run a residual analysis that will give you the total amount of hard cost the deal can handle based on its capitalized value.
Without detailed plans and specs, there is no way to create a valid line item cost breakdown for hard construction.
Let me know if you would like some help with this and I can send you an input sheet for you to populate and I will send you back the residual analysis referenced above.
Rental Property Investor · Milwaukee, WI · Member since 2019 · 42 posts · 14 votes
3y
Hey Barry,
Appreciate the help.
I see you are from Boulder, I've always wanted to visit, it looks like an incredibly beautiful city right next to the mountains.
Anyways, I got in contact with a local developer that is sending me a couple builders that would fit this size project. Through them I plan to find an architect
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
3y
Robert, You can save yourself a lot of time and money by doing preliminary underwriting to determine the highest and best use of the site while conserving 3rd party fees (architect, land planning).
Let me know if you'd like some help doing a high-level feasibility analysis