Build and hold 8 Plex help

6 Replies

Hey BP,

I need some help analysing a potential deal. I have a property in South Dakota that I'm looking to purchase.

This deal would be purchasing an existing sfr on a double lot, tearing it down and building an 8-plex with 8 garages.

Purchase price =35k

Contact estimated =$575 for tearing down and construction.

Leaving some leeway for error I was estimating $635k all in for construction of the property.

For the rental portion I am seeing 

5-1br/1ba units renting at $700

3-2br/1ba units renting at $1000

9 garages renting at $50 each

Coin op washer and dryer $90 

Total monthly income $7,040

Expenses 

Taxes =$12,500

Insurance=$2,000 (my estimation have not gotten a quote)

Property management= 10%

Vacancy =10%

I'm not sure if I missed anything but it looked like a good deal in my head. Any advice?

I happen to have a 8 plex in Mitchell SD. I think your price to build is a little low. The 2 bedroom for $1000 might be high. I charge $700 for a 2 bedroom including a garage. A new build could go for $950 possibly. I own and manage rentals for a full time job. I have tried to build several units and it has never penciled out. You must also take in account it will be empty day 1 up to 6 months. Message me anytime with any questions.

@Kaleb Carsten I would consider doing only 2 bedroom units, so maybe a 6 plex instead. Bathrooms and kitchens are where more of your money goes, so basically you can ditch 2 baths and 2 kitchens from the plan, then move that square footage to the other units. This should reduce your overall construction costs and your rents change to $6000 per month instead of $6500. Not a huge change in rents, but you will end up with more desirable units and reduce your upfront costs. 

New construction will never have the same return as existing, but you also don't have the CAPEX demands in the first 10-15 years that you would in other properties. New units come with higher rents and appeal to a higher class of tenant, so you may be trading some ROI for less tenant issues.