Quadplex Calculation Review and Input

Multi-Family and Apartment Investing
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Quadplex Calculation Review and Input

Andrew G.
Member since 2019 · 10 posts · 2 votes

All,

I'm considering an exciting opportunity to buy 3-acre lot adjacent to a K-8 school. This lot is unique because there are no other neighborhoods within walking distance, except for this one. The asking price is $150,000, which includes a very old house. My plan is to pay for the lot mostly in cash, build a quadplex on it, sell my current rental property and primary residence, and move into one of the units. Concurrently, I intend to construct our dream home on an adjacent 20-acre parcel that I already own outright.

I've double-checked the property taxes, and they're not just accurate but slightly on the higher side. Based on my market analysis, $2,100 seems reasonable for a 1,711 sqft condo in this area with a lack of apartments. We've already selected a design for the quadplex and acquired a detailed cost estimate for the build, which we project to be around $1.2 million. This area is slated to be the next biggest development in the next 10 years.
From my calculations, this seems like an ideal move, but I'm aware that there could be considerations or risks that I haven't thought of. I'd really appreciate it if the community could review my plan and share any insights or potential pitfalls I might have overlooked. Thank you for your input!

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Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes
2y

Andrew - I think you've accounted for a majority of your costs, but just a few others to consider include: vacancy factor (typically 5%), turn/over or releasing expenses, and property management fees (7-10%)  - whether you pay someone else or do that yourself you might want to include in your calculation. I see that most/all lenders include vacancy in their calculation, whereas the other two expenses are sometimes included - depends on the lender. Good Luck!

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  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes
    2y

    Andrew - I think you've accounted for a majority of your costs, but just a few others to consider include: vacancy factor (typically 5%), turn/over or releasing expenses, and property management fees (7-10%)  - whether you pay someone else or do that yourself you might want to include in your calculation. I see that most/all lenders include vacancy in their calculation, whereas the other two expenses are sometimes included - depends on the lender. Good Luck!

    1Reply
  • Andrew G.
    OP
    Member since 2019 · 10 posts · 2 votes
    2y

    Thanks for the help!

    0Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Greg Kasmer, there is also no capex reserves.  I know this is new construction, but everything that is new today has a useful life, so if you plan on holding long term, reserving for new roof, HVAC, appliances, etc is typically worthwhile.

    Not sure of your design, but if you are building these with any common areas, you will likely have a "house meter" for the common area electric.  

    I don't see any line items for landscaping items: grass cutting, annual mulching, cleanup, and snow removal (if you are in an area with snow).  Maybe you have this buried into maintenance.

    Your cap rate is not correct. Looks like you are taking NOI divided by cash invested. It should be NOI divided by value, and in this case we will assume your cost basis is value. Once you are out of there, $91.6 divided by $1.35mm = 6.8% cap rate.

    And the biggest question: you will be all in this project about $1.35mm.  Just from land costs and the fact that you are buying acreage, it seems this is a rural area.  Your rough costs will be $337k per door and about $200/psf for livable area.  I would just make sure this is worth the investment for you.

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  • Andrew G.
    OP
    Member since 2019 · 10 posts · 2 votes
    2y

    @Greg Kasmer awesome feedback too. I have adjusted my numbers and looking at 6.83% so came to the same conclusion.
    We actually own a 20 acres adjacent to the 3 acre lot and plan on building our dream home there. Just don't want to build anything on our farm land :) The lot It is 200 yards away from the highway and less than 4 minutes from the interstate. The country club is across the road. Is it it rural? No. Though the area is land locked because of an older Farmer. But his land is zoned PR-BD Planned Residential-Business District which is up against the school and our land. I also talked to the planning and zoning team for the county. Shouldn't have any issues converting it over to RD R-2 Medium Density Residential District and can build 3 quadplexes on it. So it makes sense of purchasing it one way or the other. The question is, should we develop on it?

    - Looking into Capex Reserves, thanks for this

    - At 337k per door and 200/psf sounds okay for us. 

    I heard anything over 5% cap rate is a fair investment? To me, buying the land is a no brainer. The question is, what do to with it and does it make sense to develop?

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  • Robert Rixer
    Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes
    2y

    My only concern in rural areas is demand for apartment rentals. Having said that, you are local and are clearly in a very good position to make that judgement. As far as the numbers go, I could see construction costing a few extra when it's all said and done. But overall if you're planning to build new and can make the numbers work in year 1, it's almost guaranteed to be a success in the long run.

    1Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Andrew G.,  as I was trying to convey, I cannot say whether this is a good investment or bad.  I don't know the area at all, but even more importantly, I can't imagine I have the same investment goals as you.

    At the end of the day, you are not sharing what state this land is in, let alone what town.  If you see a need for multifamily properties and create a return that is worth all the time, headache and risk associated with owning real estate, than sounds like you have a great investment opportunity. 

    All any of the respondents on this forum can do is make some very big assumptions based on the limited information you provided.  What I can say is, typically, building more units is, typically, a better plan than building less.  Not only is your land cost spread amongst more units, but also major costs in your horizontal work (sewer, water, electric, paving) are spread amongst more units.  And then, the more units you fit under one roof, typically the better.  Same idea, the cost of a roof for a building housing 12 units is less per unit than building 3x fourplexes.  You also have less siding, potentially fewer stairways, etc.

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y

    My concerns with this are threefold:

    1) You have not budgeted for CapEx

    2) Zoning could be a killer.

    3) Check duplexes, triplexes and quads within a 20 mile radius of your site. What is the psf cost of these?

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  • Andrew G.
    OP
    Member since 2019 · 10 posts · 2 votes
    2y
    Quote from @Melanie P.:

    My concerns with this are threefold:

    1) You have not budgeted for CapEx

    2) Zoning could be a killer.

    3) Check duplexes, triplexes and quads within a 20 mile radius of your site. What is the psf cost of these?

     @Melanie P., 

    1. hat's a conversative methodology for incorporating Capex for a quadplex?

    2. I have already talked to Zoning, Shouldn't be a problem at all.  Just too early to start the process

    3. Do you recommend any good sites to pull comps and run a report? One report says .77 psf. But based on 19 listings, the avg is 1.50. I would rent each unit out at 2k minimum. It is on par with the market in that area. Which at 1700 sqft per unit, .85 .psf.

    Thoughts on the above information? Really need a good way to estimate my monthly/yearly Capex.

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y

    You should have a good idea as to the costs involved with everything there because you're buying it all. To calculat the CapEx you take each item, divide by its useful life and that's how much you add ito CapEx. So you'll have four refrigerators $500 each, 7 year lifespan, $24 per month is for our refrigeration (2000 / 7 / 12). You'll do this for everything in the home that requires replacement: interior paint (4 years), flooring (12 years if you use 12 mil LVP), roof (20 years), hot water heater (10 years), oven, washer, dryer, garbage disposal, microwave and so on.

    1Reply
  • Andrew G.
    OP
    Member since 2019 · 10 posts · 2 votes
    2y
    Quote from @Melanie P.:

    You should have a good idea as to the costs involved with everything there because you're buying it all. To calculat the CapEx you take each item, divide by its useful life and that's how much you add ito CapEx. So you'll have four refrigerators $500 each, 7 year lifespan, $24 per month is for our refrigeration (2000 / 7 / 12). You'll do this for everything in the home that requires replacement: interior paint (4 years), flooring (12 years if you use 12 mil LVP), roof (20 years), hot water heater (10 years), oven, washer, dryer, garbage disposal, microwave and so on.


     Thank you! This is very helpful. 

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  • Drew Rees
    Member since 2024 · 10 posts · 4 votes
    2y

    State of the land is important!

    This is farm land, how do you connect to water/sewer?

    What is your water table depth?

    Quads on a septic system is going to be a major expense and you should expect to pump it out every 2 years or so, so it needs a man hole cover.

    If it is going to be septic be SURE you have sufficient soil quality for your drain field, you will want lots of sand. I would start there for your permits etc.

    0Reply
  • Andrew G.
    OP
    Member since 2019 · 10 posts · 2 votes
    2y
    Quote from @Drew Rees:

    State of the land is important!

    This is farm land, how do you connect to water/sewer?

    What is your water table depth?

    Quads on a septic system is going to be a major expense and you should expect to pump it out every 2 years or so, so it needs a man hole cover.

    If it is going to be septic be SURE you have sufficient soil quality for your drain field, you will want lots of sand. I would start there for your permits etc.


     Drew,

    Good idea. But we have access to city water and Sewer. The land has 800ft of frontage of a primary rd to the highway.

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