Hoe Does Commercial Multifamily New Build Makes Business Sense?

4 Replies

I been in buy and hold for a while in Massachusetts. Commercial multi-family is mostly what I have done. 

I was researching with the idea of whether to go into new construction instead of purchasing existing buildings. Idea is to buy buildable lands and build 20-50 units on it. Construction cost numbers that I see online are bit scary. I get the notion of 150-250 per square foot on expenses.

I am trying to make a business sense of the build cost. With 150-250 per square foot cost, we get to around 5-6 million to build a 20 unit building, this will never work as a business.

What am I missing really? How does other people make money doing this really? Appreciate any pointers and knowledge share.

@Manik Zaman a lot of it depends on type of construction, land cost, existing inventory and CAP rates. Sometimes it can make more sense to build if there is no existing inventory or if you can build cheaper than you can buy due to demand and low CAP rates.

Each market is different so you need to run the numbers to see if it makes sense for you to buy. The other factor is time. It can take 3-5 years to get a project built and stabilized depending on size. 2-3 for 20-50 units.

Small commercial and self storage are making a lot more sense in several markets right now as apposed to apartments.

Development is risky and there are a lot of moving parts so you really need to study this and hire a consultant to help you if you have never developed ground up.

@Greg Dickerson Thanks for the response. 

Based on your input it does look like buying existing ones probably makes more business sense. 

I would educate myself some more on this, probably good idea to speak with a local contractor to have some thoughts.

Thats a good plan. The different types of commercial have different price points so you may be able to make some projects work. It's case by case property specific but good to have options.