Worth buying land and constructing duplex?

Question

I noticed some land nearby my neighborhood that is zoned multi-family. I have been wanting to get into more concentrated properties, and I was wondering if anyone had any advice/"Don't do it" for the possibility of buying land and building a duplex/multi-plex. I understand that builders are building at a rate of ~$100/sq ft these days, so a duplex with 1k sq ft would run min $200k (maybe?), and I think I could likely get $1100/month in that area, although I'm not too familiar with how realistic multiplex rent works vs. SFH. I'd love to get some advice/criticism/feedback/etc. The land is for sale, although I'm doubting I can get a great deal on it (maybe $30k for 2 acres?).

Matt K. · Answer

You might be better served by looking at infilling vacant lots that are in a better rental location. But out here almost all vacant land is priced very near at what a similar home would sell for after you take into consideration construction costs etc so more times than not it doesn't make sense to build.

Stan Sugarman · Answer

When housing prices drop you should be able to buy assets at below replacement value. Also rents tend to drop during a downturn so your yield on new development will be depressed also.

Jonathan Roveto · Answer

That's basically what I figured. I ran rough estimates in my head, and I just couldn't see it working. Is this something worth doing when the construction industry is hurting/housing prices are depressed?

Stan Sugarman · Answer

You will be building to get a pretty low return on your money after expenses. There is a reason that almost no new small unit rental is built anymore. Development costs make the return too low versus buying an in place rental.