Real Estate Investor · Chilliwack, British Columbia · Member since 2016 · 8 posts · 1 vote
Colleagues!
In a hot British Columbia market in the Fraser Valley of beautiful BC - what filters/rule of thumb should we consider when consider purchasing four older homes (tear down and build a good size 4-6 story apartment)? (60 units 4 story or 100 units if 6 story)
What are some guidelines you would suggest as we evaluate this opportunity? There is almost zero vacancy right now in our area - of course, it would be some time to get things ready and build and have ur first renters. Are there some math formulas that help? - you can pay X for land to build e.g. 60 apartments or pay up to Y to build up to 100 Units? I know there are multiple variables on "what type of construction, amount you can get for rent, (here it would be close to $900 -$1,000/ month per 2 bedroom unit etc) - but on the land purchase itself what guidelines show I consider please? many thanks,
May I suggest reaching out to a developer. Otherwise look at land comps and come up with an estimate of land values for use as MF. Perhaps tie the property up and wholesale it to a developer. Either way unless you have been developing projects of this size you may be just spinning your wheels.
There are a ton of things to consider. Reaching out to a developer may be one. However, if the market is hot and you are not in a position to develop you may have given the deal to the developer.
The value of the land is to be consider, but also, what's driving in the economy and does that industry or industries have promising out looks. Depending on the entitlement process and design, it could take you as few as 12 months to 24 months to even begin to put a shovel to the ground.
1. Identify rent comps, properties you would compete against;
2. Understand what apartment units are moving and what's not; and are there opportunities that may have been over looked. Call the comps and speak with the property manager or experienced leasing agent and ask a ton of questions, but be respectful of their time as they don't have much for someone not renting a unit. Ask about floor plans, unit sizes, unit rents, how many units and unit breakdown, what's the most popular unit, what's least popular; if they could change something about their property what would it be.
3. Look at the demographics of population, specifically age groups, incomes, etc.
4. Confirm with your local zoning how many units are possible for your site. You mentioned 60 units and 100 units. Is that the best use of the land in terms of units or should it be 200 or 300 units. Depending on zoning, can you build MF on it at all without getting a variance or the property rezoned.
5. Understand the neighbors. Will they push back or be in favor of a MF development?
6. Based on average rent per unit or sf, number of units, market vacancy, plus possible amenities income, less OE of approximately 40% (ask appraiser for OE ratio or property manager) less replacement reserve ($250 per unit), gives you your appraisal NOI; Identify sales comps and cap rates (call a local appraiser). Come up with value.
7. Is cost to build and acceptable difference to develop? If not, pass on the deal or consider a different use or mixed use.
Are the properties zoned for apartment or strata development? Check your municipal Official Community Plan to determine the city's vision for redevelopment. This will tell you what zoning could be considered. The zoning would outline maximum building height, site coverage, set-backs from property lines, parking requirements and floor space ratio.
A city planner or an architect could quickly determine how many units could be built on the site. You may wish to consider tying up the 4 properties and planning 2 projects involving 2 lots each. Once you know how many rental or condo units the site would support, you should consult a realtor who specializes in the sale of multi-family sites to determine the current price per unit.
If you are not experienced in developing or building, the advice of @Jack Edgar Jr should be seriously considered.