Building a 4-plex instead of buying one...
Rental Property Investor · Portland, OR · Member since 2015 · 85 posts · 49 votes
Building a 4-plex instead of buying one...
Most Popular Reply
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
10y@Chad Duncan I build my duplexes, as it makes more sense to me than buying turnkeys. But there is some very different issues when building than buying. Financing can be a really big difference, as you would be looking at a construction loan and for me, that means coughing up 20% of the total costs (land, construction, permit, etc). Another issue is zoning, and you might find it difficult to find land with the proper zoning for 2-4 unit buildings. Things like design the building and getting plans might be an issue. There are alot of choices to be made when building also, something that you must be comfortable with.
In my area, I can buy a turn key duplex for about the same as I can build it, but the house is older and comes with those Capex risks. I can build some equity into the project if I build from vacant land, plus I build exactly what I think renters want nowadays. I stay with duplexes (2 unit houses) due to building regulations and limited land zoning for 3+ unit building in my area.
With all of the above being said, you should be able to do a quick check in your area to see if building makes sense. First is land cost, second is building cost and last is what existing 2-4 unit buildings are selling for. Land costs is likely the biggest decider if things make sense. Below is a quick example that works in my area (I am looking at this project right now).
2 unit duplex, 2bed -1bath, 1800ft2 total (900ft per unit)
Construction Costs = $90/ft2 = $162,000
Comps sales prices = $140/ft2 = $252,000
If I pay $52,000 for the land, the cost of the land is $28.89/ft2, making my total costs $118.89/ft2 (equity of $38k), this is a good deal.
If I pay $100,000 for the land, the cost of the land is $55.55/ft2, making my total costs $145.55/f2 (equity of -$10k), this is a bad deal.
Your construction costs per sq ft will vary with region, for me $90/ft2 is right for the size of duplex that I build.
Once you determine this, you can drill down into the income to determine if it makes sense from an investment standpoint.
77 Replies
- Member since 2021 · 1 post · 1 vote4y
@Lesley Resnick I'm trying to build an owner occupied 4 plex in North Florida. I want to do an FHA 3.5% down but having problems finding a lender. Do you have any suggestions or contacts? Thank you.
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes4y
Originally posted by @Daniel Huffmaster:
@Lesley Resnick I'm trying to build an owner occupied 4 plex in North Florida. I want to do an FHA 3.5% down but having problems finding a lender. Do you have any suggestions or contacts? Thank you.
Sorry, I do not have a recommendation. I would google it. I think it may be a specialty item. Not even sure if such a product exists. If you do find it, please send the name along.
- Investor · Austin, TX · Member since 2020 · 223 posts · 83 votes4y
Originally posted by @Daniel Huffmaster:
@Lesley Resnick I'm trying to build an owner occupied 4 plex in North Florida. I want to do an FHA 3.5% down but having problems finding a lender. Do you have any suggestions or contacts? Thank you.
Checking with my lender in Florida. Will keep you posted.
- Investor · Austin, TX · Member since 2020 · 223 posts · 83 votes4y
Originally posted by @Daniel Huffmaster:
@Lesley Resnick I'm trying to build an owner occupied 4 plex in North Florida. I want to do an FHA 3.5% down but having problems finding a lender. Do you have any suggestions or contacts? Thank you.
My lender suggested a construction loan. DM me if you'd like his contacts.
- Contractor · Candler, NC · Member since 2016 · 43 posts · 15 votes4y
Originally posted by @Darlena Jones:
We have a construction company and can't build cheaper than buying. I wish.
What' age are the homes you are purchasing? <5 years old?
thx
- Real Estate Agent · Savannah, GA · Member since 2018 · 122 posts · 141 votes4y
I am starting to build in Savannah, GA. I have several lots that aren't cash flowing. My theory is that it will never get cheaper to build than it is right now. I don't see labor getting cheaper, and I definitely don't see materials getting cheaper.
- 4yScott JohnsonBusiness MemberSpecialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
Originally posted by @Mike Wood:
@Chad Duncan I build my duplexes, as it makes more sense to me than buying turnkeys. But there is some very different issues when building than buying. Financing can be a really big difference, as you would be looking at a construction loan and for me, that means coughing up 20% of the total costs (land, construction, permit, etc). Another issue is zoning, and you might find it difficult to find land with the proper zoning for 2-4 unit buildings. Things like design the building and getting plans might be an issue. There are alot of choices to be made when building also, something that you must be comfortable with.
In my area, I can buy a turn key duplex for about the same as I can build it, but the house is older and comes with those Capex risks. I can build some equity into the project if I build from vacant land, plus I build exactly what I think renters want nowadays. I stay with duplexes (2 unit houses) due to building regulations and limited land zoning for 3+ unit building in my area.
With all of the above being said, you should be able to do a quick check in your area to see if building makes sense. First is land cost, second is building cost and last is what existing 2-4 unit buildings are selling for. Land costs is likely the biggest decider if things make sense. Below is a quick example that works in my area (I am looking at this project right now).
2 unit duplex, 2bed -1bath, 1800ft2 total (900ft per unit)
Construction Costs = $90/ft2 = $162,000
Comps sales prices = $140/ft2 = $252,000
If I pay $52,000 for the land, the cost of the land is $28.89/ft2, making my total costs $118.89/ft2 (equity of $38k), this is a good deal.
If I pay $100,000 for the land, the cost of the land is $55.55/ft2, making my total costs $145.55/f2 (equity of -$10k), this is a bad deal.
Your construction costs per sq ft will vary with region, for me $90/ft2 is right for the size of duplex that I build.
Once you determine this, you can drill down into the income to determine if it makes sense from an investment standpoint.
This is absolute gold. I was investigating the construction of a mobile home park and focused most of my energy on understanding ordinances in the area I was looking to build. This is a critical first step and one that can reveal opportunities that everyone else misses.
You have to know what the local government wants to be built. Use that to guide what you do.
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes4y
It's usually the same issues everywhere. How cheap can you get land and how cheap is it to develop in that locality? If you can find a good deal on land and can cash build, then you're golden. If you have to buy land over-market and pay interest for 10 - 12 months, not so much. Someone can tell you all day that they can build at $x/sqft but are they including the land purchase, the dirt and dozer work, builder's risk, upfront and long-term carrying costs and etc? Who knows. OSB and dimensional lumber are on the rise again. Everything else doubled and tripled in price while everyone was rubber-necking lumber earlier this year too.
@Jay Hinrichs, I'd love to see some sort of redacted, categorized cost report, just to see what you're paying for labor for bulk projects. I can't come close to building a house for $80/sqft (in 2015 maybe), and that's in a country bedroom town in SE Texas, with no garages, no carport and minimal porches.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Justin Fox:
It's usually the same issues everywhere. How cheap can you get land and how cheap is it to develop in that locality? If you can find a good deal on land and can cash build, then you're golden. If you have to buy land over-market and pay interest for 10 - 12 months, not so much. Someone can tell you all day that they can build at $x/sqft but are they including the land purchase, the dirt and dozer work, builder's risk, upfront and long-term carrying costs and etc? Who knows. OSB and dimensional lumber are on the rise again. Everything else doubled and tripled in price while everyone was rubber-necking lumber earlier this year too.
@Jay Hinrichs, I'd love to see some sort of redacted, categorized cost report, just to see what you're paying for labor for bulk projects. I can't come close to building a house for $80/sqft (in 2015 maybe), and that's in a country bedroom town in SE Texas, with no garages, no carport and minimal porches.
yup we neither but I am not doing Texas starter houses IE slab on grade and basically minimum building code and materials.
it would take too much work to figure out just the labor.. we hire subs for all the trades and they are bulk not to exceed bids and they BUY all thier own materials (except Lumber and Windows) Every other component is a material and labor price with no break down. We only work with subs that can carry the job Net 15 in other words once job is done in a particular month they have to bill by the 25th and they get paid on the 15th.. Many parts of the country subs simply cant carry the jobs and need money up front or along the way.
also our SDC and Permits are generally 7 to 12% of the total build cost. and of course does not include land or land development which right now is at 40 to 60k per lot depending on off sites and topography. WE have to build some pretty robust storm sewer systems sometimes that system alone with be 10k a lot.. etc etc.. as they say its all location specific.
Bottom line I basically cannot build a home lot in included for much less than 400k my cost here in the Portland metro area.
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes4y
@Jay Hinrichs, thanks for the info! What's the average heated/cooled SQFT of the homes you build?
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Justin Fox:
@Jay Hinrichs, thanks for the info! What's the average heated/cooled SQFT of the homes you build?
1800 to 3500. sale price 300 to 500 a foot.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes4y
Keep in mind building brand new means abiding by 2021 (soon to be 2022) building codes. For example in California we are required to add solar panels. This is an added cost without the added value in rents (in my opinion). You may be better off buying a fixer 4-plex and go that route. Plus the financing might be easier, as you can explore the FHA 203(k) loan or something similar.
- Investor · Weston, FL · Member since 2017 · 22 posts · 2 votes4y
Anybody familiar with construction loans in southern Florida?
- 4ySebastian MarroquinPro MemberReal Estate Agent · Pasadena, CA · Member since 2015 · 476 posts · 263 votes
Easy answer:
If you can build all in: for a price per sq foot lower than what you can buy for…. Then YES all day.
Now, I am sorry for this… but if you are on this forum asking this question, something tells me that you have not done enough research and you may know what you are getting into.
Will you say to me… well, that’s exactly what i am doing on here (getting info), well, I would say no. A good talker on here will “help” you get started and will charge you a pretty penny.
There are a lot of good people on here with out a doubt, but you have to know what you are talking about, what questions to ask, etc.
Getting a loan for construction is intricate (not so much about the actual know how) but also assessing holding costs, permits, zoning, ARV, ROI, etc etc etc
Now, don’t let me stop you… some of you are fast learners! So please go for it.
My humble suggestion: How about starting with a SFR: if you can successfully build for (all in) : $400k and sell it for $550k and make a $100k profit. Or refinance it and keep it with no money in the deal!! Then you qualify for the 4 unit property (with more money, more experience, etc)
Most people would even start with a fixer condo: then a fixer House, then an addition, then a new construction home and then a 2x or 3x or 4plex.
Enjoy the journey!
If it were that easy, savvy investors would only build 4 plexes and not buy already built ones.
(Then again, anything is possible!) :)
- Member since 2022 · 1 post · 0 votes4y
I live in Picayune, Ms and I am looking towards getting a few units put up. I need some assistance with the process.
- Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes4y
@Chad Duncan 1) buidling costs are hgher than expected 2) getitng financing to build an 4 plex will be difficult, costly and frustrating with reagrds to lender guidelines / requirements 3)
- Member since 2021 · 1 post · 0 votes2y
Looking for a 4 Plex builder in South Jersey (NJ). Buying is not an option and I get a 100% LTV loan financing. Just a Looking for a solid reputable builder that can build for us on a continuous basis. Referrals welcome. Bids with Pro Formas are required to qualify.
- 2yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Chad Duncan:
I am wondering if building would be better than buying. I live in Portland Oregon and the cap rates for multifamily are around 5-6% max. My idea is to buy some land, and build a 4-plex on it. House hacking on one of them. Anyone have advice, ideas, or subject matter experience on this? Thanks.1. The build time will take a lot longer than buying and renovating an existing 4plex. There is less risk/less variables in buying existing vs new BUT with new you know it's up to current building codes and your insurance will reflect that.
2. You'll also need a lot more capital to build the 4plex vs buying but talk to lenders about construction loans and refinancing into a stabilized loan after
3. Talk to your planning and building dept to understand their timing to process your permits and the costs associated with plan check AND the utility fees to extend them to raw land (impact, connection, tap, meter fees)
4. talk to builders to get their per SF costs for new construction, lead times to pull permits and schedule construction and length / duration to build it.
5. Complete your UW to see if building pencil's in your market
It really just depends on the size of project you want to take on and how long you want to spend on this project. I've been a developer the past 17 years working on commercial, industrial and residential projects nationwide. Development is the long game and requires stamina and isn't for everyone.
- 2yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Chad Duncan My contractor is telling me you can’t build cheaper than you can buy and to forget trying to build right now.
I've got space to convert a garage space into an ADU but the cost was prohibitive so I'm thinking of logically starting with one piece at a time and building it out when I have a little money here and there over the course of a few years now.
- 2yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Alecia Loveless:
@Chad Duncan My contractor is telling me you can’t build cheaper than you can buy and to forget trying to build right now.
I've got space to convert a garage space into an ADU but the cost was prohibitive so I'm thinking of logically starting with one piece at a time and building it out when I have a little money here and there over the course of a few years now.
That's the exact feedback Chad will need to get from contractors that specialize in new construction of multi-family in his market. Many markets the numbers don't make sense but there are some pockets across the country where they do.
- Member since 2019 · 7 posts · 5 votes2y
I see this thread has been revived recently, and it's one of the top google results for this topic. So does building a 2-4 unit property become more feasible in light of the recent 5% down conventional loan product that regulators have introduced?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.