Building a Multi-family?

13 Replies

Hey everyone, I've debated to myself about even asking this one but here goes...

Has anyone here ever did a new construction multi-family? (2, 3, or even a 4-plex) If or if not, how did it work out for you or why didn't it? 

I'm asking because there is a perfect lot near me (3 acres) that I thought about maybe buying and constructing three 4-plexes in phases. They are asking $99k for the lot. I've talked to a builder casually about doing the construction but we haven't talked numbers or anything like that. I just wanted to run this idea by the BP community for ANY sound advice. Thanks!

Do the numbers work?  How much would the build-out and construction costs?  What are the market rents?  What's the local cap rate?

Is the zoning appropriate?  Do you need an engineering analysis or survey?

Do you have the cash?  Do you have access to the cash? 

Do you have experience building? 

Great idea! I would buy this lot cheaper and wait for a better offer from real developers :))) you may be better with build and sell strategy than build rental. For rental properties it is cheaper to buy than to build except beautiful apartment complexes if you have long and cheap money. For short money you may find more reasonable to cut this lot and sell to people who want to build, or to build townhouses with idea to sell or wait for offer from real developers.
Originally posted by @Jewrel Rudolph :

 Has anyone here ever did a new construction multi-family? (2, 3, or even a 4-plex) If or if not, how did it work out for you or why didn't it? 

Yeah, I've done it but only on the duplex scale, not larger. It worked out fine but I couldn't retire from it.  :)

I have been eyeballing a lot suitable for eight units but I haven't made a move on it yet because I have enough to do with just buying existing units. Given the choice between the two I'd buy existing all day long. Development carries a lot of additional risks and deeper pockets. But as the market heats up, the rewards begin to overpower the risks...

If you do decide to build, be very careful to research all of the costs and account for them in your proforma. Land acquisition, holding costs, engineering, architecture, permits, impact fees, utility connection fees, site prep, off-site improvements...I've probably missed a few...and all that before a single stick is in the air.  Just be sure you add it all up and build in a contingency for the unexpected.

Hey thanks for all of your input. I am merely seeking opinions and criticism from any of our many BP mentors here with much more experience. It's not a good idea to build and I didn't fully understand all the reasons why before but I do now. Thanks for all the input

@John Cohen a partnership is a really good option here. Zoning is fine but the lot is kinda pricey and the cost of building is about avg. I would have to seriously crunch these numbers before I even think of pulling this off

I've done it. It was great. I bought a house and split off the lot and built a duplex. Builder was challenging to deal with and the lender was challenging to deal with. Things like fire rated screws were news to the developer (usually SFR) but not news to me so it was a partnership.

@Jewrel Rudolph  that price seems incredible. What is the zoning, and what density will they allow? A three acre parcel is a big parcel. 

As has already been mentioned, you have to KNOW what all the costs will be, and that the project fits with the zoning. On a lot that size, one of the biggest expenses is going to be installation of all the infrastructure. (utilities, curb, gutter, sidewalk, road, paving, etc.) as well as the excavation of the site. 

You might want to start by talking to a civil engineer, that can give you an idea on those costs. 

Once you have a better idea of how many units you'd be able to build, you will be able to figure actual costs to build the structures. 

Over the years we've built many spec projects, from SFR homes, Office buildings, Office/retail condos, Small office parks, and a residential/multi family subdivision (which ended up being our downfall when the market crashed)

Also, you didn't mention what the market for units is in the area. Are there a lot of units on the market, few, new/old, etc. Are rents high or low? Are there a lot of vacant homes around? 

In deciding to do a project, there is a lot of information that is needed in order to determine whether or not it's a good project or not. Good luck! 

When buying dirt for multi family properties you need to buy it at the right price, $99k for 8 units could be a steal in your area or it may not be. Look at what the other guys in town are paying for dirt. 

In my area C units are $10k, B are $20k, A $30k, and A+ can be high, IE waterfront. 

So in other words that 8 unit site in an A location, my favorite would be worth $240k to me, approved. That includes all engineering, city approvals, etc. Which in my area can run $30k on a parcel like that. 

Typically on the back side after everything is built, you want to have lots of equity from day one, and cash flow from day one. If you can't do both its not worth the risk and time. 

So to figure out if this is a good deal you need a couple pieces of info:

1. How much is the dirt really worth? 

2. How much will it cost you to build whatever you need to get the rents.

3. Will local rents support this.

4. Will local valuations come resale time reward you with equity?

You need equity for two main reasons:

1. On deals like this banks typically only lend up to 70% LTV, and really you don't want to go higher than that. If you buy right you don't need to come up with lots of money to get to that LTV level.

2. The icing on the cake, if/when the market gets smoking hot you can condo them out for a fantastic profit.