I am currently doing the due diligence on a property near a major Florida university on a buy and rebuild project. The builder has already gone by to inspect the property to determine what could be possibly built on the lot. We are thinking of building 6 purpose built town homes with 3 bed / 3 bath each and a driveway. The return is $9000 per month if all are rented out to students or they can be sold at $230,000 according to comps in the area. We can also build two additional rooms in the basement with their own walkout for an additional $1000 per month per house which brings the total to $15,000 a month in rental income. I am wondering if building town homes is the best route to take, or should I build a mid rise to accommodate more students?
@Gary Reven it all depends on the development cost. If you run the numbers each way that will shown you the best route to take.
@Gary Reven I’m originally from Toronto and now living in West Palm Beach area.
I know it’s common to have basements in Toronto used as rental space, but curious as to why you would do a basement here in South Florida?
Here, as I’m sure you know, we have water issues. The state is built upon mostly sand and our water tables are high. Combine this with the amount of rain we get and a basement spells disaster.
I think I know the area you are talking about as I’m moving that way personally. If you use the York University model that Tribute Communities did when they built their townhomes, I think you’d be successful. If it were me, I would build to sell as student housing for married couples, singles and investors that have the option of adding additional bedrooms to rent by the room with common area. (Disclaimer: I worked for them a few years back)
There are a bunch of new student housing buildings going up already in Davie and Cooper City along University Avenue to support University of Florida and the entire Nova campus, but I believe there is still opportunity due to the popularity of our destination as well as for people moving to take jobs at the new Hard Rock Casino and Hotel.
@Darren Lenick thank you for the feedback. You're right about Toronto having conditioned my mind to think a certain way, such as building a basement in Florida which is a disaster waiting to happen.
The alternative is to construct 14 units with 3 bed 3 bath at 1500 sq feet per house.
The estimated project cost would be 21,000 sq ft at $160/ sq ft which is $3,360,000. if the rooms are rented out at $500/month the rental income is $21,000 a month. If we we're to take the gross annual NOI of 252,000 the cap rate is 7.5%.
The problem is that at the estimated project cost, it places the home above market value in respect to the comps. Based on the numbers, this is starting to look like a rebuild and hold for the cash flow, which is not the route I wan't to go down.
Do you know any body interested in this project?
@Gary Reven No such thing as "gross income NOI" and being used to determine a cap rate.
NOI is of course After subtracting all operating expenses. While new units will have lower repairs and capex in the beginning, I believe student rentals include all utilities, so add that with your Insurance, taxes, water/sewer, landscape maintenance, garbage (if not included in property taxes), management, etc. to come up with your real NOI....see what cap rate that gives you.
Your numbers posted don’t seem to add up to a good investment.
You didn’t give the sf of the units, but assuming at least 1500 sf or so, your cost to buy/build is way over the $230k comp prices.
@Wayne Brooks you're right. This project is starting to look like a bad investment indeed. The cost for the build is quite expensive and the taxes on a comp in the are are about $25,000 - $30,000. I spoke to a student housing owner that owns 400 units in the area and he said that his taxes we're $56,000 this year for one his 40 unit properties. Going to speak to a civil engineer today to determine exactly what we can build on the property so I can get an accurate calculation of the cost of the build.