Building Multifamily instead of buying

7 Replies

I'm having trouble landing any good deals in my area. I've put in offers/bids but have been beat out every time. Properties are basically selling for more than what I would purchase them for for decent cash flow. I'm starting to wonder if I should try building my own multifamily instead of buying. I have a little bit of an advantage. My grandfather bought 14 acres of land about 15 years ago and had it divided up and zoned into multifamily and commercial zoning. He also put in infrastructure including paved entrances and all the water/plumbing for the land. He passed away before finishing developement and it now belongs to my father who has been open to the idea of basically giving me some of the land to build on. I have a decent chunk of cash from inheritance too. I'm starting to think it might be a good idea to just build there instead of buying something built. My main concern is how to figure out the cost of building so I can know if it'd be a good deal. It seems more difficult than just running the numbers on something already built. Any thoughts/ideas from anyone who has built their own multifamily? How did you figure out the costs for it? Thanks in advance!

Originally posted by @Benjamin Pifer :

I'm having trouble landing any good deals in my area. I've put in offers/bids but have been beat out every time. Properties are basically selling for more than what I would purchase them for for decent cash flow. I'm starting to wonder if I should try building my own multifamily instead of buying. I have a little bit of an advantage. My grandfather bought 14 acres of land about 15 years ago and had it divided up and zoned into multifamily and commercial zoning. He also put in infrastructure including paved entrances and all the water/plumbing for the land. He passed away before finishing developement and it now belongs to my father who has been open to the idea of basically giving me some of the land to build on. I have a decent chunk of cash from inheritance too. I'm starting to think it might be a good idea to just build there instead of buying something built. My main concern is how to figure out the cost of building so I can know if it'd be a good deal. It seems more difficult than just running the numbers on something already built. Any thoughts/ideas from anyone who has built their own multifamily? How did you figure out the costs for it? Thanks in advance!


You need to reach out to some builders in the area that build these type of buildings to get an idea of current costs as they are up significantly right now. You also need to estimate rents and operating costs to determine NOI at stabilization to make sure the project will work.

@Greg Dickerson thanks for the reply, Sir! I guess that's a good starting point for me to start understanding what the numbers will be for the cost of building. Newbie question: do I need to have a contractors license to build my own multifamily? I'm open to the idea of managing the project and hiring out sub-contractors if I am legally allowed to. Thanks!

Originally posted by @Benjamin Pifer :

@Greg Dickerson thanks for the reply, Sir! I guess that's a good starting point for me to start understanding what the numbers will be for the cost of building. Newbie question: do I need to have a contractors license to build my own multifamily? I'm open to the idea of managing the project and hiring out sub-contractors if I am legally allowed to. Thanks!

Yes most states require a commercial GC license to build multifamily which is residential more than 5 units. 

The construction and development development business is risky.  I would strongly advise against hiring trade contractors directly unless you have extensive construction management experience.  Having a general contractor or construction manager will provide you with a needed layer of insurance to de-risk the project slightly (it's worth the GC fee) - that said, it will not guarantee the process to be a walk in the park.  Have you selected an architect & civil engineer to begin working on the plans?  That's the first step if you are really interested developing this land and the information the contractors will be looking for when providing a preliminary budget.  The design to be 100% complete, (if fact it's better that it isn't so you can pivot and not blow your design budget due to redesign), but it's a good starting point so the contractors know you are serious - especially if there is no established relationship.

Benjamin,

Another source of building costs you can access is the modular industry.  One of my clients did a two family that way.  They may be able to give you estimates for the other work involved (foundation, driveway, etc.) as well.  

Your dad should check with his insurance to see if there is anything that needs to be changed once you start.  Sometimes policies on Vacant land have restrictions and need to be endorsed for the active work.  It probably will increase the cost but should not be a big jump up.

Boy, what are you thinking?! You have the greatest advantage just by owning the land you inherited.  If the number without paying for the land still doesn't work, what could be?  In my state, you can pull the owners permit, you don't need to have the contractor license, you just need a license and bonded contractor to do the job for you.  You just need to do your due diligence like most investors do, getting the bids, finding a good contractor etc.  Wish you good luck!