@Nicholas Spinazze
Building from the ground up is absolutely a great strategy in certain situations. As with all acquisitions, you must buy right. In this scenario you must "buy the land right" and "build right" ( Do not over build for your neighborhood,) I always look for value / opportunities that others may have overlooked or may not even know about the possibilities of what they can do with the land via zoning, subdividing, etc. So, you have already hit a home run by finding a lot that you have mentioned you have subdivided into 2 lots and on top of that you can also build an ADU on each lot. So, kudos to you brother!!! Great start to the build!! What unfair advantages do you have at your disposal? Are you friends with any General Contractors or trades that you can get a better deal from? What kind of sweat equity can you contribute? With the main goal of building it as efficiently as possible which will clearly lead to the most equity at time of completion. (Hopefully enough to execute a full BRRRR after completion even if you have to stabilize / season it before a cash put refi) Now on to the pros and cons of building new. The pros to building new are : 1- That you a doing a massive value add and creating a substantial amount of equity. 2- You will have no Cap-ex and repair expenses for many years to come. 3 - You end up with a nicer property which will demand higher rents, both for short term rentals as well as long term. 4 - Building 4 buildings at the same location should lead to some economies of scale if you can buy in bulk certain items. It will also be more efficient time wise having all the subs knock their jobs out while they're there on site. Time savings = Money Savings / Time is money!
The cons of building new are: 1 - Unforeseen expense increases due to supply chain issues, high labor demand resulting in higher costs, Contractor not budgeting correctly, etc. Do everything in your power to stay in touch with them and review budget as frequently as possible so that you're at least aware of the changing expenses and can adjust accordingly. 2 - Holding costs during construction phase and until you have them rented and bringing in income. Make sure you factor in all the holding costs. Interest, Insurances, Property Taxes etc. 3 - Generally speaking, you usually will get a property that you remodel rented and providing income quicker than a new build.
As a contractor (not a GC yet) I have been able to build in the past where the appraisal came in double what I had in the total build. In which case I was able to refinance and pull out all of the initial capital. Now to be clear, that did in fact include a bunch of sweat equity that I contributed but then again, I'm fine with delayed gratification!
I wish the very best of luck with your development!! I look forward to seeing how this turns out for you!
