Buying land and developing new multi-unit building

17 Replies

Hi - I currently rent two single family homes in Overland Park area. I am now interested in buying land and developing new 4-Plex units. Depending on the cost, I would like to start with 2 units and later build more as the space/budget allows. What are some of the things that I would need to consider before heading out to buy the land? Are there City ordinances/zoning laws that can keep me from building multiplex units? If you have any experience with this, any advice is very much appreciated. Thank you!!

Sorry, I don't have an answer to this, but I hope somebody gives a detailed answer, I am also interested in creating a multi-unit property.

Good Luck!!!

This can be a good strategy but also risky unless you have experience.  Having a partner that will let you learn is a way to mitigate risks.  Do you have financing?  Have you targeted land in any specific areas yet?

I have contemplated this myself and want to start networking with a builder in my area. It would be nice to have a very good idea of cap rates going in. Very few surprises. But expensive on the initial investment.

I had a contractor work up a price for a 2000 sq ft duplex from plans I found on the internet.  He basically said $200K before land.  It is not financially feasible in my area to do this as rent would be maybe $1400 for the unit.  Not sure if that helps you but I was pretty disappointed.  I was thinking more like $70 a sq ft. to build

Does your city have zoning plan that is available online? That should tell you if you're allowed to do the 4-plex. The zoning code should have an allowable number of people per acre. You'd need to check that before you do anything.

I do not have any info on how to go about this therefore I'm here to do my homework. I do have an area in mind as I had looked at buying an existing multiplex there but backed out due to bad pricing. Based on that experience, it seemed like its just better to go about building a new one according to the specs of current housing trends and get maximum rent for the square footage. Besides Cap-rate, I'm also counting on the growth of this particular area and appreciation of the house price 10-15 years down the lane. As far as financing, I do have a pool of friends willing to chip in along with my own.

So looks like I need to reach out to the city to find out zoning laws in the area - does this mean that I need to have a plot in mind beforehand? How do I go about finding a builder to get an estimate?

You don't need an exact address but you do need to know which area. The more exact location the better. Zoning laws can be different on the other side of a street. Just call the municipality and ask. You can also try online. Tell them the area and what you want to build. They can easily and quickly give you an answer.  

In regards to a price from a builder you are going get a wide range if you just ask for a basic quote as, "How much for a 3,000 SF two story duplex?" A good builder won't give you a price. They need more information. Also, if this is new construction you might need an Architect as well. 

Jim Kent, another BP member posted a similar question HERE. I gave him a long reply dealing with zoning, building (modular rather than stick built) and estimates. If you have any questions after reading that just ask away.

One thing I forgot to mention to Jim are the hidden cost of construction. If the zoning department says you can do it then call the building department and ask for the following fees (not all of these will apply):

1. Building Department Fee

2. Sub-contractor permits (electrical, plumbing, etc.)

3. School Fees for new construction

4. Hook up fees to utilities (gas, water, sewer, storm drain)

4a. If you need to tear up the street what are the requirements for repaving?

5. Do you have to build sidewalk/gutter along property line at street?

6. Any storm drain requirements. (this can get expensive)

With those in mind be sure to ask your builder how much the following cost (this can be a ballpark) that can be a significant amount:

1. Sewer connection

2. Sidewalk/gutter 

3. Storm drain connections or a catch basin (this might be harder to estimate)

There are a lot of hidden costs pertaining to building anything. Be careful. I'm doing it now building my own modular house. You can go to my blog/website and see my experience. If you go through with it just send me a PM and I'll help by sharing all my mistakes so you don't do the same. 

Good luck.

This is similar to our primary strategy right now. We are building new construction duplexes that we keep as rental properties. It is a high risk endeavor as there are costs to construct, the $90-$110 per SW ft number but also the soft costs which are tap on fees, permitting, erosion control, appliances for kitchens if you provide those. These units are cash flowing decent, but the real win is great appreciation, minimal repairs, and we are capturing 30-50k in equity immediately. I will also add that I am on site and building these myself as I am a contractor by trade. Best of luck, please message with any questions!

Thank you all for your inputs. With the info I got from this thread, I now know where to start. I very much appreciate the time you took to respond to my rookie question. Eric T./Jordon B. - Thank you for your offer to help, will definitely reach out to you when I have more firm footing on this project.

@Jordan B.

How are you financing these projects? When you say you are on site everyday, are you stopping in to check in outside of your normal day job? Or are you there full time? What do you estimate the costs to be for someone that is not a contractor, but familiar with renovations? How many are you building at a time? Would it be more cost effective to do a 4 unit or more? Thanks for any feedback and congrats, sounds like you're crushing it.

@Nathan Waters

We use a portfolio lender to finance the projects. He lets me use the lot as my 20% down on an 80/20 commercial loan.

I physically build and oversee these projects myself. As far as someone who is not a general contractor it's hard to figure the cost due to the fact that your materials will be marked up as well as the subs. 

We build one at a time, more than one at a time loses efficiency for us, but may work for others. 

In my area once you start building 3 units or higher you fall under state building codes, sprinklers etc which makes it less feasible for us. 

Hope this helps and feel free to ask anything else!

If you are buying the land from an agent they can pull the current zoning for a search, you can only build multi family in multifamily zones. The city will be able to confirm the building zone / restrictions.. they will sometimes only allow stacked or side by side duplex, or four plex.. .even if it is zoned multifamily ALWAYS call the city and validate your plan they will give you steps on how to get the build approved.. I have seen multfamily properties purchased and never built on because zoning issues.

Fortunately and recently; I've been given the opportunity move into development, it is a good idea to have a market (area);  land or lot vetted out and with comps trending upward. A good GC local with knowledge and contacts can make your life easy; they will know what you need and where to get it permits, who are the building inspectors.. they've worked with them before, however they cost$$$ and are usually busy; got to book them early. To me their worth it . Ultimately; it is your responsibility to lock in "all"permits prior preferably not having them can cause costly delays. Zoning is a process to change factor this into your timeline. Try to stay away from this in the beginning; if needed check it first in some instances you may not be able to get a parcel rezoned or land subdivided. contact the your county clerk they can point you in the right direction. The land will need to be spec'd out to see if its buildable. Rural areas VS Urban areas present their own unique challenges my area has a touch of both figure out where you want to be! Modular builds single and multi unit the timeline is better and several thousand less than stick build in my locale. Some modular companies have there "own" financing arm the (actual building) allowing  for greater flexibility. Also develop your process like a cookie cutter easy to replicate. Relationships (be professional) with these people you will see them again! You have your work cut out for you however its a wonderful business with great people in it. Good luck..

@Sam Kasa I haven't personally do it but am going to start this sooner than later. My landlord, at our office building, did this and is a personal friend with a guy who built a ton of property here in the Northlands. They said it is very similar to flipping. Once you figure out the process and have the right list of subs it is simply working the process correctly and getting financed. Honestly, other than the approval stages and blueprints I don't see how this could be much more complicated than some of the massive flips we have taken on.(spoken like a true spec build novice lol)