What would you pay for a new 4-plex?

Question

in some areas, quality 2-4 family homes are in short supply and high demand. I've been thinking of building 4-plexes to meet this demand.

What would you pay for the following new 4-plex?   4 - 3/2s in a DFW edge city in a good school district. B area. 1125 SF each.  4500 SF total, plus one car garages. Hardie board siding, granite, stainless, vinyl plank, and tile. 9 foot ceilings.  Monthly rent of $1100 each. Area has @ 95% occupancy.  Property eligible for FHA financing.

How much would you pay?

This is not a solicitation for investment. I'm not there, yet. Just trying to gauge price/demand.

Kurt K. · Answer

I can't speak to your area. But I always look at the numbers on a buy and hold basis. I generally apply the 50% rule and look for 10 caps.

That being said a price of $264,000 (in my area) would make that building interesting, to me.

I'm not an appreciation investor per se, I'm looking to build a portfolio of 10 caps or better at purchase. If they appreciate that is nice, but isn't something I could/would count on, it's too speculative.

As an investor I don't put too much stock into it being "new and shiny". Income, expenses, and proper cap rate is what matters to me as an investor.

Robert Leonard · Answer

@Jon Klaus I think the margins are too thin for anyone but "all cash" investors to make decent long term returns on new construction for rentals.  Commercial lenders are only locking in rates for 5 years as a pretty standard practice and rates have a high probability to be higher 5 years from now than where they are today.

Unless you have some unusually advantaged situation to reduce the construction and land costs, I think it's way more speculative than dealing with existing properties.  Just to use round numbers for illustration (I do not know DFW construction costs), IF DFW construction costs $100/sqft, one of those will cost 450k to build not including the land. At 4400/mo that falls a little short of 1%/mo gross rent.  There are still investors who are happy with that rate of return (~6% Cap).  $52,800/year before expenses and taxes is still way better than putting your money in the bank!  So, there are likely buyers who this type of property would work for.  Just a particular group of  retail investors.

Joel Owens · Answer

Jon all the clients I have the foreign investors especially from Canada some are willing to accept a 7 cap because with the exchange rate they are still doing well.

I find the local investors want to squeeze out more margins when buying. The problem with the foreign investors is getting financing that they like.

I think your target buyer for the highest price is a long term buy and hold landlord who makes high income but wants a new product with less headache. They are not as focused on the most cash flow but appreciation and holding for retirement etc. in a good market.

What would you pay for a new 4-plex?

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