Multi-Family Property Development

[Jared Robbins]

I've longed dreamed of getting into real estate but have been focusing on my W2 career until now. While I currently live out-of-state, I grew up in Cleveland and got my Masters from CSU's Levin College. As I look to real estate investing, I believe my best options are to a) find a house hacking opportunity in NYC (where I live); or b) find an investment opportunity in Cleveland. When comparing these two options, I think investing in Cleveland aligns better with my "real estate why" and longer-term goals.

With that as context, I have been looking at a potential high-risk, high-reward multi-family housing development opportunity on land bank properties. I have friends in architecture and home building who would design and construct the property at cost. I also have friends at the City and local CDCs to turn to if/when needed. And I have a few potential equity investors lined up. Finally, I have done some (very) high-level math on the project and believe it inks out.

All that said, I know I need to get better data to inform a the financing and see if this really makes sense before I go any further. But I'm not where where to turn to next! Any advice is welcome--even if it's "you're in over your head; get out now." :)

[Steven S.]

Quote from @Jared Robbins:

I've longed dreamed of getting into real estate but have been focusing on my W2 career until now. While I currently live out-of-state, I grew up in Cleveland and got my Masters from CSU's Levin College. As I look to real estate investing, I believe my best options are to a) find a house hacking opportunity in NYC (where I live); or b) find an investment opportunity in Cleveland. When comparing these two options, I think investing in Cleveland aligns better with my "real estate why" and longer-term goals.

With that as context, I have been looking at a potential high-risk, high-reward multi-family housing development opportunity on land bank properties. I have friends in architecture and home building who would design and construct the property at cost. I also have friends at the City and local CDCs to turn to if/when needed. And I have a few potential equity investors lined up. Finally, I have done some (very) high-level math on the project and believe it inks out.

All that said, I know I need to get better data to inform a the financing and see if this really makes sense before I go any further. But I'm not where where to turn to next! Any advice is welcome--even if it's "you're in over your head; get out now." :)

Sounds like you are on the right path, aligning your business interests with friends is a good way to get the real-deal knowledge/insights and stay in touch!

As for where to turn next, its hard to say without underwriting the project myself, but out here in LA the deals don't last long! To be confident moving forward, I would check Rent comps for my terminal product's units, draw that up into GOI, calculate expenses or just multiply by 0.7-0.75 to subtract annual expenses (utilities, maintenance, taxes, insurance, etc) and arrive at NOI, then subtract my other expenses (like debt payments) over the year, to see what we're looking at in potential CF once fully stabilized. Next, I would check market sales of similar product, see what the cap rates are for them upon their hopefully recent sale, double-check they have similar units as our terminal product, then take the NOI & divide it by that market-cap rate to get our income-approach of value. Double-check your estimated $/sf, $/door, and projected rents are in-line with the comps. Let's say $5M is the worst-case sale price, you are confident it will sell for more.

Work your way back from there with the construction (hopefully a good estimate, slightly more than required to be safe), carry costs over the total project duration, selling fees of 5% when you go to sell, etc. Let's call this your all-in costs. Take them, and subtract them from the ARV you calculated to get your break-even price. Whether you want to either have good cashflow or be able to make 20% annually on this thing when you stabilize it and sell, just change your offer price to leave room for that accordingly.

Making a spreadsheet model yourself, one that inherently makes sense to you, will always work best for this, but I am happy to provide you my SFR & Multifamily quick-evaluation models, just reach out: