Contractor · Haverhill, MA · Member since 2015 · 31 posts · 3 votes
I am on the verge of purchasing a piece of land in my area. I'm trying to find out what type of build will yield the most profit. i.e building a large single family home versus building a multi family. It is zoned for both.
How confident are you on project costs? Have you done this kind of thing before?
How long will it take the project to get completed? What are the risks of timeline slippage with a MFP vs. a SFP?
What's your investment horizon? Different types of investments will be more or less profitable than other types over different horizons due to different up front costs.
Here's my thinking - you can structure the analysis as if it was an extra-large buy, renovate, and rent project (except the "renovation" step is a new build) and just use a DCF analysis.
First, figure out up-front costs: initial payment on land + initial payments on the new construction + holding costs (each of these must be discounted to present value for an apples-to-apples comparison). Then, you can just use a standard cashflow calculation to estimate cashflow after the project is completed (with expenses estimated in the standard way), again discounted to present value.
Whichever project has the greatest net present value is the more profitable venture.