Build or Invest?

Question

Should I build a duplex, triplex, quad, etc., for house hacking, or should I invest in a multi-family property and renovate it into apartments? I know many variables exist, but I am conflicted about whether to build or invest. The land is going for affordable prices in my area. The main pro for building would be the ability to control where I live while living in the house, whereas most multifamily homes are within city limits and not my preferred choice of dwelling.

Rick Albert · Answer

Be careful when doing business with family unless you are paying full retail value for their work. Otherwise they have to prioritize higher income producing projects. I had a client get burned because of this and it made things awkward.

Henry Clark · Answer

Although there are many issues and questions for you to knock out, the underlying question is to build or buy.

Building or developing, you have two profit streams.  Commercial properties are measured on NOI or Cap rates.  So, you get the value of building once rented up.  Second is the ongoing rental stream.

You will always "numerically" make more money developing/renting versus buying/renting.  But there is a lot more risk and skill sets involved Developing.  Zoning, subcontractors, mother nature, P/I during construction and rent up, your loan doesn't get "fixed" until after construction, material inflation, etc, etc, etc.

You have taken most of the risk off the table with family financing and family construction.  Your question gets down to, will you ever do this again?  Otherwise, it's not worth the time learning, because you do have to make mistakes.  Do you want to expose your family to the risks, since they aren't participating in the Developer profit?

Sounds like a great deal.  You already know the market.  Have both financing and construction nailed down, even without deep diving into it.  Key issue is to protect your family.

Anastasia Monro · Answer

Those are great questions to start my real estate journey! You've given me some very valuable action steps to figure out what works best for my position. I will be looking to start those conversations and find those partnerships. Thank you for taking the time to respond with your insights!

Jackson Ebersole · Answer

Rick poses a key question. How are you planning on financing the build or investment?

If it's your first groundup, I would definitely find a more experienced partner that you can learn from. But I would first start on something even smaller. It is quite an undertaking, processes will be long and unforeseen costs could pop up. You must tread extremely carefully.

You will need to conduct some thorough market analysis. How fast you can get quality tenants, and how much cash flow they can provide. What are average rents like in your area? Who is your target tenant?

I'd personally talk to some contractors, and local real estate agents, and do some more connecting on here to get some more opinions from more seasoned veterans.

Good luck!

Jackson

Rick Albert · Answer

How are you financing the build? That could actually be more expensive then you realize.

You also have to factor in time. The time to build new might take you a year or likely more. You would need to ask contractors.

You buy something already built and renovate, you get tenants in and start making money that much sooner.