New Construction 4plex Vs Purchasing 4plex

[Robert Trevino]

Hello Everyone, I am located in Killeen, Texas and planning my next investment. We currently own 1, 4 Plex and am  working on strategizing the purchase of the next one. I want to house hack the next 4plex with a conventional primary loan using 5% down. My other option that i am considering is doing a new construction on a 4plex. My question is.. does anyone have experience getting a conventional primary loan to build a 4plex and what if any experience can you share regarding the building of one. What can I expect when getting funding from a bank on something like this? Will they leverage the income potential like they would on An already built one?  Who can i speak to in the construction/builder space that could help me get an understanding of costs /planning for a new build.

Thank you 

[Account Closed]

Quote from @Robert Trevino:

Hello Everyone, I am located in Killeen, Texas and planning my next investment. We currently own 1, 4 Plex and am  working on strategizing the purchase of the next one. I want to house hack the next 4plex with a conventional primary loan using 5% down. My other option that i am considering is doing a new construction on a 4plex. My question is.. does anyone have experience getting a conventional primary loan to build a 4plex and what if any experience can you share regarding the building of one. What can I expect when getting funding from a bank on something like this? Will they leverage the income potential like they would on An already built one?  Who can i speak to in the construction/builder space that could help me get an understanding of costs /planning for a new build.

Thank you 

Getting a conventional primary loan to build a 4plex can be a bit more complicated than purchasing an already built property, but it is definitely possible. When applying for a loan for new construction, banks typically look at your credit history, income, and assets to determine your eligibility. They may also take into account the income potential of the 4plex once it is completed.

It's important to speak with a lender who has experience with construction loans to fully understand the process and requirements. They can also help you determine the financing options available to you.

In terms of the construction aspect, it would be beneficial to speak with a reputable builder who has experience in constructing multi-family properties. They can provide you with a cost estimate and help you plan out the build from start to finish. Additionally, consulting with a real estate agent who is knowledgeable in the local market can help you make informed decisions and ensure the success of your investment.

[Alecia Loveless]

@Robert Trevino Right now in my market the cost to build is just so much greater than the cost of purchasing existing that unless you’re building a personal home no one is building.

I’d be sure to look at the cost per sq/ft analysis of what the difference is between new construction and what you will pay for an as built. You may find it just doesn’t make that much sense.

[Robert Rixer]

Cost to build today would be prohibitively expensive for the return, especially for a non-experienced developer. As for house-hacking an existing quad, only putting 5% down in this high interest rate environment will almost certainly mean you won't be "living for free" as is the point of house hacking. With that said, if you take either route, manage it responsible and hold it for the long term term, you will almost certainly come out a winner in the end.

[Joshua Christensen]

I tend to agree with the cost to build vs. existing in today's development environment.  That being said, it's not completely undoable.

Reach out to @LaMancha Sims - He's a creative non-bank lender who does a lot of development projects as well as existing stuff.  Good guy to have in your corner.

[Randall Brooks]

I can't speak to the financing side of this question.... but as a GC I would tell you to reach out to reputable GC's/construction companies in your area for a rough estimate of what it would cost to build a 4 plex. I know labor costs are cheaper in the south than what they are where I am at in the NW.... see what they charge on average per sq/foot to build.

A couple positive aspects to new builds that are often over looked are very low capital expenditures for a 10-15 year time period after the build. New builds typically tend to appreciate faster and demand a higher rent than average for an area compared to older units (we often see a higher quality tenant(s) in new builds as well).

If you were to buy an already built 4 plex are you expecting any immediate or mid term rehab and what are the projected rent rates and rough estimate for annual appreciation. Compare that to low cap expenses of a new build and any higher rent rate associated with the new build as well as any anticipated higher appreciation and run your numbers over a 5-10 year period.

New construction may cost more upfront but may make more sense with an extended timeline.

[Robert Ellis]

Quote from @Robert Trevino:

Hello Everyone, I am located in Killeen, Texas and planning my next investment. We currently own 1, 4 Plex and am  working on strategizing the purchase of the next one. I want to house hack the next 4plex with a conventional primary loan using 5% down. My other option that i am considering is doing a new construction on a 4plex. My question is.. does anyone have experience getting a conventional primary loan to build a 4plex and what if any experience can you share regarding the building of one. What can I expect when getting funding from a bank on something like this? Will they leverage the income potential like they would on An already built one?  Who can i speak to in the construction/builder space that could help me get an understanding of costs /planning for a new build.

Thank you 

 building starts with land selection, plans, entitlements, permitting before you talk to banks 

[Robert Trevino]

Thank you for your response Emma.  

[Robert Trevino]

Quote from @Robert Rixer:

Cost to build today would be prohibitively expensive for the return, especially for a non-experienced developer. As for house-hacking an existing quad, only putting 5% down in this high interest rate environment will almost certainly mean you won't be "living for free" as is the point of house hacking. With that said, if you take either route, manage it responsible and hold it for the long term term, you will almost certainly come out a winner in the end.

 I have been running some numbers on 4plexes for sale in my area. Values have definitely gone up but the rental market has not quite caught up.But yes, at 5% down, my margin is tiny. Thank you for your response Robert

[Robert Trevino]

Quote from @Joshua Christensen:

I tend to agree with the cost to build vs. existing in today's development environment.  That being said, it's not completely undoable.

Reach out to @LaMancha Sims - He's a creative non-bank lender who does a lot of development projects as well as existing stuff.  Good guy to have in your corner.

Thank you for the response and referral! I will give him a shout!

[Brian Adams]

I updated my blog article with a snapshot of Killeen fourplexes. 

There haven't been any built in the area since the 2000s. My understanding as to the reason talking to local inspectors was the updated building codes made them uneconomical; specifically requiring that buildings with more than 2 units have to have fire sprinklers. I don't know for certain whether that is true, but it would certainly explain why duplexes continue to take off while there are no new fourplex neighborhoods anywhere. 

You're right that rents have not caught up to prices. Prices have topped out, and still represent about a 6% IRR. But you'll be cash flow negative for a while.

[Robert Ellis]

Quote from @Brian Adams:

I updated my blog article with a snapshot of Killeen fourplexes. 

There haven't been any built in the area since the 2000s. My understanding as to the reason talking to local inspectors was the updated building codes made them uneconomical; specifically requiring that buildings with more than 2 units have to have fire sprinklers. I don't know for certain whether that is true, but it would certainly explain why duplexes continue to take off while there are no new fourplex neighborhoods anywhere. 

You're right that rents have not caught up to prices. Prices have topped out, and still represent about a 6% IRR. But you'll be cash flow negative for a while.

 have you looked at other markets? we build stacked triplex 2004 sq ft total, 668 sq ft in columbus economics work here for new construction enough to pull all cash out with land in urban core very affordable on infill lots.