Multifamily considerations for new build

[Sabi Const]

Hi everyone - thanks for taking the time to read my post. I am interested in your thoughts about multifamily investment properties. I believe that cap rates are important and cash flow is king. My thought is that constructing a new multifamily property will be more attractive to renters rather than offering an existing 'older' unit. Also, the expected overhead should be less because of using new materials. Is there another way to think about this? Also, regarding the financing aspect - what is the most effective and efficient way to go about it? I have contacted the bigger banks and spoke to independent mortgage brokers for lending options and have heard down payment requirements of anywhere between 25-30% Thank you for your time and look forward to your comments.

[Account Closed]

Reality check- 

New construction is almost always going to translate into higher rent. I agree with you that many more people are limited to renting as a result of higher prices and tight credit lending but you need to keep in mind that with construction cost at an all time high, a new unit may not be affordable to the main stream market. 

In Dallas, one of the best rental markets in the country, the cost of new construction for a garden style apartment is around $110,000 per unit ( all in including land and soft cost). Most projects are well above that number.  Given typical financing cost, that translate to around $1.45 per sf in rent as  a min.  Median rents are well below that so that you are catering to a smaller section of the market.

Lastly, if you have not developed a property before, be prepared to show a lot of liquidity in your financial statement.

We develop and invest in apartments and the two are very different strategies. In general, your maintenance cost are less with new construction but other cost such as taxes are higher so that your overall cost are not significantly different. The real question is holding period. As a merchant builder, your value is made in development, as a revenue manager, your money is made in improving cash flow.