Building duplex in this economy?

Question

So with how expensive real estate is and how high the rates are and also extreme compition with investors with much deeper pockets than mine, I was thinking of maybe getting a duplex built.

There aren't really any multi family homes in my area except for the bad parts. In order to have anything built I would have to hire out 100% of the work due to already being full time W2 and family with young kids. So basically just finding a contractor for a custom duplex. Maybe something bigger. Would the cost of the build, land and rates even be worth it? Renting wouldn't be an issue. The issue would be whether or not I cash flow, break even or end up cash flow negative.

I am just trying to come up with some strategies since it's been years since my last deal. Thanks all!

Todd Anderson · Answer

@Eric Blair,

That is a great question to be asking.  The build to rent stradigy to REI is a growing and i beleve very viable way to invest.  I would with investors just like yourself who want to invest this way, but have full-time W-2s.

The biggest challenge in the strategy is to solve for many of the problems that are popping up for you, getting the work done, finding the right area, and funding the construction. What I found the best way to solve for these problems, is to find a builder in a quality area that is currently building this way. This way the builder can take the risk of the construction loan, and the investor can enter the deal after the build is complete. The investor gets all the benefits of a new construction investment property is able to avoid much of the risk and the long wait times of the build. The investor is also able to see an ROI as soon as he get the property rented.

I found that this type of investing works for mini investors in your situation. If you have more questions about the concept, feel free to connect.

Best of luck.

Eric Blair · Answer

@Stephen Morales good points. I'm just brainstorming ideas at the point

Stephen Morales · Answer

I have a good friend of mine that does small multifamily developments out in Charlotte via novations with land owners or home owners. The margins for him are fair but he has been in the industry for well over a decade and has great connections. I asked him what it would take me to go vertical and the numbers are honestly not worth the risk and opportunity cost. With the cost of materials it is very hard to build right now. It may be a bit different for your area but in most cases unless you get an amazing deal on a piece of land in a great area of town or you're the developer and can find a sweet deal - it's very difficult to go vertical and have a property cash flowing.