New construction vs. Rehab

8 Replies

I live in a city where rehab properties go very quickly, cash deals for the most part, with the exception of the extremely dilapidated properties which are  located in the lower income areas of the city ( few businesses, some crime).  Im in a position to purchase a small tract of land where I can build a duplex up to a quad.  My question is would it be better to pay a little more for a new construction property or do I wait for a hot property to become available, place an offer which may not be that far off from the asking price.

thanks!

Elle

Financing is lower than it will be in the future so if the numbers make sense it may be wise to build. A few years ago, when financing was low for construction, there were huge apartment complexes going up in Ithaca, NY but were bound to sit vacant for awhile. It didn't matter to the builders because it was the cheapest rates they could get at the time and was worth it to have a locked in rate for x amount of years versus waiting until the rates went up. 

Are you planning to pay cash on a hot property and buy as-is? If not, some other investor will probably come in and do it even if they are a bit lower in price. 

Keep in mind, I have zero new construction experience. In my market, it seems to be a bubble that I wouldn't want myself entering right now because its at the top, in my opinion. 

Thanks Steven, I could not pay cash for the property, but Im looking to partner with a GC to build then sell. I work with agents that are always seeking good investment property in the area. As there isnt much, I think there is a market here in the Triangle area. From looking at our MLS, I see a decent duplex (built 2006) is listed for almost 100k/door/. Most are older duplexes from the 70's and as old as 1935.

Elle

Duplexes in our area do have a tendency to be on the older side.  I don't think it's a bad idea at all to build your own multifamily instead of buying something existing if you are in a position to do it!

Dawn, Do you know any reputable licensed GCs in the area?  Im going to move forward with this deal, but I need a GC and funding.

Thanks,

Elle

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Originally posted by @Steven J. :

Financing is lower than it will be in the future so if the numbers make sense it may be wise to build. A few years ago, when financing was low for construction, there were huge apartment complexes going up in Ithaca, NY but were bound to sit vacant for awhile. It didn't matter to the builders because it was the cheapest rates they could get at the time and was worth it to have a locked in rate for x amount of years versus waiting until the rates went up. 

Are you planning to pay cash on a hot property and buy as-is? If not, some other investor will probably come in and do it even if they are a bit lower in price. 

Keep in mind, I have zero new construction experience. In my market, it seems to be a bubble that I wouldn't want myself entering right now because its at the top, in my opinion. 

 Vacant apartments in Ithaca? If they are downtown Id highly doubt it haha. I am an investor here in Ithaca and its a pretty hot market.

There's not nearly enough information to answer your question...

How much does land cost?  What would your building costs be?  What cap rates do landlords expect?  What are market rents?  How long and tedious is the engineering and permitting process?

This post has been removed.

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