New Construction Multifamily / Apartment in Dallas

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New Construction Multifamily / Apartment in Dallas

Shital Thakkar
Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes

Hi,

I am planning multifamily / apartment construction in Dallas Metroplex.

Here is my planning, let me know your suggestions and recommendations...

  • Land : 2-3 acres
  • Land Price: 200 - 300K
  • Units: 30
  • Construction: Around $80/SF

Please message me if you build similar project in past and like to discuss.

Thank you

1Reply
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Most Popular Reply

Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
Originally posted by @Shital Thakkar:

@Greg Dickerson Thank you Greg for your insight. 

We have few lands sorted out. Need to decide best one based on other due diligence.

Yes, we need site work, permits, utilities etc.

We are planning Class B construction.

In that case here's a brief summary of the process. First step would be to get the property under contract contingent upon getting all entitlements for what you want to build. You do not want to close on the land until you have all your approvals to build what you want.

Once you have control of the property you begin the feasibility and due diligence process. You determine highest and best use by analyzing the market and by talking to realtors, property management companies, appraisers, builders and developers in the area.

Next step is to do a quick feasibility analysis to determine if the project will work financially. You do this by calculating the NOI to help determine value and work backwards. You also need to look at the comps as well to validate your assumptions. Start with the potential gross income then subtract the operating costs to determine NOI, divide that by the CAP rate in your area to give you the value, then subtract development costs, building costs, commissions and interest expense. You want at least a 30% margin above costs and the NOI needs to be enough to pay the debt service after stabilization and then some.

If the project looks feasible from a financial standpoint the next step is to check with the city or county planning and zoning department to get an idea if your concept will work, if you can build what you would like to build and what is required for all approvals including site plan, building permits, proffers, water/sewer tap fees, bonding requirements, inspections, setbacks, lot coverages, parking requirements, height restrictions, C/O process and time frame for all approvals.

You also need to check with the utility companies and get an idea of availability and cost estimates from them for water, sewer, power, gas, cable, installation and connection requirements, tap fees, hookup charges, transformer location and relocation, power line and power pole relocation issues. Check to see if you have to install any manholes, fire hydrants, curb, gutter, sidewalks, street signs, street lighting any specific street design or access requirements, Check DOT requirements for access, stop lights and permits, traffic studies, DWQ requirements for permits, permit fees and time frames.

Once you have an idea of what you can build and what is required in terms of permitting and infrastructure you want to talk to some civil engineers, architects and commercial general contractors that do the type of projects and build the type of buildings you want to build so you can get an idea of costs, time frame and requirements.

This is a brief and broad overview of how the development process works what's required before you get too far down the road or purchase a property.

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  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Shital Thakkar:

    Hi,

    I am planning multifamily / apartment construction in Dallas Metroplex.

    Here is my planning, let me know your suggestions and recommendations...

    • Land : 2-3 acres
    • Land Price: 200 - 300K
    • Units: 30
    • Construction: Around $80/SF

    Please message me if you build similar project in past and like to discuss.

    Thank you

    $80 a foot sounds pretty low. Does that include site work, permits, utilities etc? Do you have the land already? Theres quite a bit more to the process if this is just an idea.

    4Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Greg Dickerson Thank you Greg for your insight. 

    We have few lands sorted out. Need to decide best one based on other due diligence.

    Yes, we need site work, permits, utilities etc.

    We are planning Class B construction.

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Shital Thakkar:

    @Greg Dickerson Thank you Greg for your insight. 

    We have few lands sorted out. Need to decide best one based on other due diligence.

    Yes, we need site work, permits, utilities etc.

    We are planning Class B construction.

    In that case here's a brief summary of the process. First step would be to get the property under contract contingent upon getting all entitlements for what you want to build. You do not want to close on the land until you have all your approvals to build what you want.

    Once you have control of the property you begin the feasibility and due diligence process. You determine highest and best use by analyzing the market and by talking to realtors, property management companies, appraisers, builders and developers in the area.

    Next step is to do a quick feasibility analysis to determine if the project will work financially. You do this by calculating the NOI to help determine value and work backwards. You also need to look at the comps as well to validate your assumptions. Start with the potential gross income then subtract the operating costs to determine NOI, divide that by the CAP rate in your area to give you the value, then subtract development costs, building costs, commissions and interest expense. You want at least a 30% margin above costs and the NOI needs to be enough to pay the debt service after stabilization and then some.

    If the project looks feasible from a financial standpoint the next step is to check with the city or county planning and zoning department to get an idea if your concept will work, if you can build what you would like to build and what is required for all approvals including site plan, building permits, proffers, water/sewer tap fees, bonding requirements, inspections, setbacks, lot coverages, parking requirements, height restrictions, C/O process and time frame for all approvals.

    You also need to check with the utility companies and get an idea of availability and cost estimates from them for water, sewer, power, gas, cable, installation and connection requirements, tap fees, hookup charges, transformer location and relocation, power line and power pole relocation issues. Check to see if you have to install any manholes, fire hydrants, curb, gutter, sidewalks, street signs, street lighting any specific street design or access requirements, Check DOT requirements for access, stop lights and permits, traffic studies, DWQ requirements for permits, permit fees and time frames.

    Once you have an idea of what you can build and what is required in terms of permitting and infrastructure you want to talk to some civil engineers, architects and commercial general contractors that do the type of projects and build the type of buildings you want to build so you can get an idea of costs, time frame and requirements.

    This is a brief and broad overview of how the development process works what's required before you get too far down the road or purchase a property.

    15Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Greg Dickerson, Again, thank you very much for all details.

    This will help me big time and I really like your website also, lots of great information.

    Will contact you once done with initial feasibility study.

    Thank you

    1Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Shital Thakkar:

    Hi,

    I am planning multifamily / apartment construction in Dallas Metroplex.

    Here is my planning, let me know your suggestions and recommendations...

    • Land : 2-3 acres
    • Land Price: 200 - 300K
    • Units: 30
    • Construction: Around $80/SF

    Please message me if you build similar project in past and like to discuss.

    Thank you

     Reach out to Kenny Wolfe. He is doing something similar. 

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Nick B. Thanks for the reference.

    Can you please provide me his contact details.

    0Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Shital Thakkar:

    @Nick B. Thanks for the reference.

    Can you please provide me his contact details.

    I sent you a PM 

    0Reply
  • Account Closed
    Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
    6y

    Great info on this thread!

    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Shital Thakkar I think mentioned some really great points. 

    If I were you, I'd use about $100/SF to be on the safe side, especially in the DFW area. 

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Ola Dantis, Sounds good, assuming $100/SF construction... here is my high level numbers... 

    Please correct me what major item I am missing here...

    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Shital Thakkar 

    Currently, your NOI is 80% of Gross Potential Income [GPI], which I think is overly optimistic even for New Construction.


    Think of it from the perspective of your buyer coming in to take down the deal, say, 2-3 years after construction and full lease-up. How are they going to underwrite this deal...? 

    For instance, we underwrite our deals by assuming that 50% of OpEx takes a bite off the GPI. Of course, this is a little conservative for new construction but I hope you get the point. 

    2Reply
  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    6y

    @S Thakkar to be blunt you have no business building a 30 unit complex if this is your first time doing ground up construction.

    Take some baby steps - expand the footprint of an existing property/house. Then build a house or a small multi. Then move up.

    If you estimate expenses are 20% of Gross Potential Income, you’re in for a rude awakening. New construction has bankrupted many “developers” in the past. 

    2Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Account Closed, Thanks for your input.

    It will be more beneficial if you correct the numbers and guide instead of demoralizing.

    1Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    6y

    On the other hand, $800 per month per apartment seems pretty low for new construction in DFW.  Maybe bump up the land price a bit, and go for $1.50 per square foot rent per month.  Where are you planning to build this project? 

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Jon Klaus, Thanks for your input.

    I am planning in periphery of DFW, Couple of land parcel is in Sherman and Sanger.

    0Reply
  • Michael Ward
    Real Estate Broker · Fayetteville, AR · Member since 2018 · 75 posts · 50 votes
    6y

    @S Thakkar

    In Arkansas, 30 unit multi family construction would probably be more than $120/SF in hard costs. Probably more like $140+. Maybe Dallas is cheaper. Commercial construction is complex. Fire suppression alone can add $5-$10/SF. You really need to understand the true hard costs. And site work costs are a big part of that too.

    Your soft costs are way low. Architect and engineers charge a lot and you’ll need them not just for design but also for construction administration. More importantly, your cost of financing will be significant and you don’t seem to account for that at all. You have to budget for origination fees and the interest carry. You’ll be paying interest for 12-18 months before you’ll see any income. But you can use the loan to pay for the interest if it’s budgeted on the front end.

    Finally, as already stated and I'm just echoing, your NOI is unrealistic.

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Michael Ward, Thank you for your inputs.

    We are planning Very basic class B construction. I am talking to few GC and they feel we can achieve basic construction in $100/SF.

    I really appreciate for your input about other hard cost, I am working on to find more hidden hard and soft cost. What do you think about soft cost for this size project?

    Regarding interest for 12-18 month, I assumimng we will lease out around 80% within 6 month as demand is very high in Dallas market(Avg 95% MF Occupancy). Considering that I did not count income generated by the time of stabilization too.

    What else I am missing in NOI, I counted Tax, Insurance, Management. Considering brand new construction, I am not counting Opex and planning to sell property as soon as stabilize.

    Again thank you for your input and please fill in the missing...

    0Reply
  • Michael Ward
    Real Estate Broker · Fayetteville, AR · Member since 2018 · 75 posts · 50 votes
    6y

    @S Thakkar

    Maybe $100/SF is realistic, so we can stick with that number. The simplicity of complexity of design will drive the hard costs. But does that cost include all the costs of site work (clearing, grading, etc) and paving? 30 units on 2 acres will have a lot of concrete, so get a handle on that. And all the utility costs, are those included in that $100/SF?

    Also, 21,000 SF is just the total SF of units, but you will have other common spaces (balconies, hallways or corridors, stairs, etc) so again, the design is critical to understanding hard costs. What will the building form what look like?

    For soft costs, usually $20-$25/SF is reasonable. You’ll have civil, structural, MEP engineers, in addition to architect. Typically, the developer should be getting paid a fee as well, but that isn’t always the case. There are legal fees, surveys, bookkeeping, permit fees, inspection fees, due diligence costs.

    I think 6 months to 80% lease up is unrealistically aggressive. I haven’t done much development, but one of most accurate statements about RE development is that everything takes way longer than you think it should.

    Finally, always always include some

    OpEx. Even new construction has issues.

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Michael Ward,

    Yes, $100/Sf include all cost including site work. I like some GC to confirm if this is realistic number.

    My overall plan is something similar to @George Y. (https://www.biggerpockets.com/...)

    If we count $25/SF Softcost, total Softcost will be 525K. 

    Based on demand in DFW market, I feel confident that I can have 80% occupancy within 6-9 month. I like some local MF investor to confirm on this.

    Thank you very much for your valuable insights...

    0Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    6y

    @S Thakkar

    I’d partner with someone who has experience and then bring the money to the table.

    For a three story garden you might ballpark $105-$120 / nrsf on 850 NRSF unit avg. For 30 units with no amenities, I’d say $105/ft.

    10 units/acre is low density for an apartment complex. There’s no economies of scale on 30 units from a development or operating perspective. I’d build 30 single family rentals before apartments for various reasons (lower expense ratio, lower turnover, most likely cheaper to develop and build, Multifamily agency financeable, etc).

    I’d personally reconsider this project. Go bigger and partner with experience.

    4Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Mark Allen, I am agree with you, I am interviewing multiple GC and planning to partner up with GC and/or other experienced investor. Please let me know if you know someone in DFW area.

    I am planning to phase out, will build more units in phase 2.

    What is your opinion on number of units that can be good start if I decide to go bigger and partner up with other experienced investors?

    What are Pros and Cons of developing Multiple Fourplexes or Town Homes development project compare to Garden style apartment?

    0Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    6y

    @S Thakkar

    I list the pros and cons in my new book on Amazon “Buying in Bulk: How to Buy and Sell Single Family Rental Portfolios like an Institutional Investment Fund”.

    Links Construction is the premier Multifamily builder in DFW. Lee Robinson leads up sales.

    1Reply
  • Shital Thakkar
    OP
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    6y

    @Mark Allen Sure, will check out your book.

    I just check your web site, looks like you guys doing lot of apartments, Single family portfolio and land brokerage.

    Please let me know if there is good land parcel in DFW.

    Thank you for referring the builder.

    0Reply
  • Richard Hadley
    Rental Property Investor · Waterville, ME · Member since 2018 · 36 posts · 19 votes
    6y

    @Greg Dickerson

    All that knowledge, I wish I had known you 20 years ago, now I feel to old to take on something like this. Lol

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Shital Thakkar:

    @Account Closed, Thanks for your input.

    It will be more beneficial if you correct the numbers and guide instead of demoralizing.

    You can start with whatever size you want as long as you have the right team. 30 units is not a big project at all. 

    1Reply
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