Is anybody here still building multifamily right now?

Question

I'm trying to get a small 15 unit building built. When does it make sense to push off a project? Although things are completely nuts I don't see material prices relenting anytime soon, or if they do we will be knee deep in 6+% rates. Anyone pushing off, these bids are absolutely insane and unreasonable in my opinion?

Joni Chin · Answer

@Timothy Munger

Well i already have plans, permits etc in and want to get my money out of it. At this point I could just sell the lot for a small profit but plan A is to build a house and get it sold and plan b is to rent it out short term or long term if it doesn’t sell within in a reasonable time frame like maybe 90 days or so. Not doing anything during the nearly 4 years I’ve had it has just been costing me in taxes, insurance, and yard maintenance.

Timothy Munger · Answer

So you are still continuing to build...why?

Joni Chin · Answer

@Timothy Munger

I’m about to start a build (not a multi-unit though) in Indianapolis too…I had waited a couple of years after demo, but you are right about the materials and the cost of construction going up! I waited in hopes of appreciating market and due to other timing but I think costs may have gone up faster than the appreciation and rents.

Timothy Munger · Answer

Yes, this project is in Indianapolis. Rents and occupancy have gone up but not to the point where this recent material crunch has made rents that much more attractive. I haven't gotten the appraisal yet but about too. Let's hope you are correct in this assessment or I am in trouble ha.

Timothy Munger · Answer

I don't agree with the large crash from 08 happening again, that is very unlikely to happen. I think a slow bleed from inflation like the 70s (just not as bad) seems more likely. I studied the 70s and early 80s for exactly this reason. Throughout that time rents were gaining almost 10% per year despite stocks falling due to the security of high bond rates. I agree though that holding paper wealth is the absolutely worst thing to do right now... and I'm trying to avoid it at all costs, hence the risky build I'm trying to pull off. It's near a 8% cap right now which isn't bad for a new build...but

Spencer Gray · Answer

Rents and more importantly asset values have risen more than construction costs. The builders I know are building right now or looking for projects.

Timothy Munger · Answer

Well of course on paper those things won't be an issue but I would assume with all new builds the margin is extremely tight.

Joshua Janus · Answer

Will the property cash flow well now, and into the future with reasonable increases in rent rates, property taxes, appreciation etc?

Timothy Munger · Answer

@Chris Seveney

Thanks yes market study was very positive .7% absorption. Lots of other area building definitely. Issue is rents must go up year over year or this thing won't be very profitable, though I may be able to sell it for a decent profit but i have no desire to do that. I just am confused how everybody else is making these numbers work. My numbers have a 5% rent rate change year over year.