@Amy Ranae good question. I'm interested too.
I would love to see the numbers on one too. About 3-4 years ago someone built a brand new fourplex, 1.5-2 bedroom each. It cost them approximately $650k
I have been looking into this for a little while but haven't gotten to fully costing it out yet. If I can catch-up and finish a couple projects this winter I am hoping to have solid plans next summer. I have a couple lots figured out (not in Mpls) and have some of my contractors in mind who have built new houses. Plan is to purchase plans and contracting out most of the work. Can't see much happening before next fall though, I have two projects in line already.
Too many ideas, not enough time....
@Jordan Moorhead I would be more interested in seeing finished products at this point. I'm not in a position to execute currently but would like the option in the near future.
@Jordan Moorhead yes, please send me your contact. I'm meeting with builders and architects right now to see how we can solve this.
@John Woodrich I know how you feel! I keep going back and forth about what kind of project I want to take on. The small flips and rentals are fine but don't feel exciting to me. The high end flips look fun, but the risk is tough. I see a real problem with the current housing stock in Minneapolis and it really feels like the right time to solve this problem.
@Tim Swierczek - I'd be interested in learning more about this as well if you guys end up meeting up about this message me.
This is also a topic of interest to me. @Amy Ranae if you don't know about the City of Mpls small developers class check it out. It's great I attended last year. http://www.minneapolismn.gov/cped/D-TAP
@Tim Swierczek the finished product can look like whatever you want it to, that is the beauty of new construction :)
My thoughts are to keep things simple and instead of trying to re-create the wheel go off of what other people already have. That is why I plan to purchase building plans. Will be a learning experience either way but I think this can get rid of some of the risk involved. From a construction standpoint we have pretty much done everything other than pouring a foundation and hooking up utilities so it seems very doable to do this as the builder which would keep costs lower. After getting one deal under my belt I may then venture off the beaten path. I also have ideas of building a town home or rental community but there is a lot of work needed with talking to the city, environmental study, financing, low income vs not, etc. That is where I want to be but should learn to walk before I learn to run.
@Amy Ranae Like flipping I don't think there is much to be gained right now by finding a builder and having them do all the work. I personally don't invest in MSP/STP for varying reasons but it is clear that the city agrees there is a housing issue. Unfortunately nobody can agree on the correct way to fix it.
Hi guys, just a heads up, I ran the numbers on this in spring and couldn't find a way to make it work. I have partners doing new development, spoke with some of the large developers in town (including modular builds) and the 2-4 unit angle was a hard pass. I don't want to discourage anyone, but we aren't particularly close to the inventory being at replacement cost in my opinion which is why you continue to see so many apartment investors chasing the B and C class inventory.
I am sure there are deals if you find a distressed lot etc. but the juice wasn't worth the squeeze. It was a lot less risk to just search for a distressed existing project.
Over in Wisconsin east an hour and siimilar to @Daniel Kurkowski ’s experience the cost to build gives a pretty poor cap rate project. We looked at duplex’s to eight units with a builder just copying other recent projects, so a bunch of costs saved. The rent rates here are probably lower but lot cost and building probably lower too. Maybe a builder for their own account could do ok but here it didn’t work. Maybe if you did the general contracting or had some good deal on a lot. Good luck.
Cost to build will be around $175k/sqft. For a 1000 sq ft 2 bed, 2 bath that rents for $2k/month the numbers just don't jive. Total building size would be 2300 sqft minimum including common space, plus add a garage. You're looking at spending a minimum of $350k, but likely well over $400k. Then add on holding costs and loss of lease for the 9+ month construction period.
Honestly, I think it's tough to make the numbers work unless its a $10mm project that you can qualify for a HUD construction loan at 85% LTV 40 years fixed. Even with that the numbers are tight. Companies like Doran, Sherman, etc are getting gov't bonds and tax credits as well as cheaper institutional type investors for the capital stack.
Sorry to be the Debbie downer.
@Todd Dexheimer that was my initial thought. I know people in other states that are building close to $100 sq/ft but it seems like our construction costs are so expensive up here that it makes anything other than class A or high end homes unattractive
I realize this is the case but I feel it in my gut that there is a way so I'm going to figure it out.
I am a general contractor so I can handle that part if needed. I'm working on building the relationships I need to design the product and price it out. I need some architects to connect with. I've got financing lined up.
I'd like to speak with some smaller builders to hear about their experiences.
I'm going to figure this thing out.
@Amy Ranae The only we have been able to make this work is to buy a lot with a single family house on it and build around that house. The zoning has to allow for this and the lot has to be big enough. By leaving the existing house on the property, the land costs for new construction comes in close to zero. For example, we recently purchased a house and are putting 4 new 1400 ft sq houses on the lot (houses are close together with very small yards). When we had appraisals done of the existing house with the new homes on the lot, the existing house appraised for $15,000.00 less that we bought the whole property for. This made out per house land cost $3750.00. Unfortunately, there is a finite number of lots in out area that carry the proper zoning and are the right size. We may have to look to other markets in the future. Hope this helps.
Houses can definitely be built for less than $175/sqft - I believe that number is close to retail pricing in our market. Someone with a builder's license who doesn't mind putting some time in should be able to beat this price quite easily by contracting out the trades or using their own guys who may be paid hourly... I don't have actual numbers but the people building the cookie cutter houses for under $200k outside of the cities are probably still making $35k-$50k on each deal... And those houses are priced under $175 per foot listed on the MLS...
This new house for example is priced at $150 per foot and I am guessing it isn't being sold at a loss. Doesn't have pictures of the unfinished basement but you could finish the basement and have a small second unit: https://www.edinarealty.com/homes-for-sale/915-highview-loop-se-pine-city-mn-55063-5012713#/
@Amy Ranae Your cost to build is going to be too much to make it work as a hold property right now, unless you get very large in scale. You'd be better off buying and renovating a multi family than trying to build.
Don't forget the fact that you still need to find a buildable lot zoned for a duplex or triplex/fourplex. Buying a distressed property on the lot you want to use, plus demolition costs, you'll be at $250k if not more - just for the lot. Then another $650k or so to build that triplex/fourplex. That's closer to $900k when all said and done. Property taxes will be at least $15k/year too. It's cheaper to buy an existing fourplex and remodel, IMO.
Here's an excellent case study:
1. Bought lot for $75,000 in 2011. Extremely cheap because of recession. Good look finding it today for that price.
2. Demolition $15,000
3. Excavation for foundation etc $16,000
4. Building fourplex $584,000
5. Plus unknown amount for fire sprinkler etc.
Total spent: $690,000, considering cheap lot.
Today that lot will be around $200k-$250k, so over $815,000 all in. Construction costs (materials, labor) today will be more expensive than in 2013 when it was built.
Property taxes: $14,265.96/year.
I think the prospects of building smaller units 2-4 in prime locations are not feasible but I think there are pockets in the outer suburbs where land values are cheaper where it may work. This is an area where I definitely want to crawl before trying to run, I have a couple lots in mind that I can purchase for around $30k that are zoned for up to two units. I am thinking I shouldn't have an issue building a side/side or front/back duplex or even twin homes and keeping it under $200k. With new units that should still cash flow fine in that area and have little maintenance for a while. My goal is to hit a single or a double on the first project with the thought of a possible town home development or something else down the road.
I was talking to the executive director of a community action partnership last month and they built a low income rental housing community recently. Can't remember the specifics but they built it for $6.5M and I believe there were 32 town houses. They were 2-4 BR town homes and the cost per house was roughly $205k including roads, drainage, small park, etc. A builder ran the entire project. He mentioned that $1400 per month was considered affordable housing for the project. A project like this owned personally would likely kick out large tax losses and good cash flow. Sounds like a nice tax shelter and/or retirement plan :)