Apartment Complex Construction

[Zach Lemaster]

Hello BP!

My partner and I are looking at building 10-12 fourplexes in the next 12 months in Cheyenne, WY.  This will be our first construction project and we can use as much advice as possible.  To be honest I'm not exactly sure where to start.  We have a piece of land picked out, general building plans (that needs to be verified by a engineer/architect), project manager and construction company inline for the project.  We've been talking with the city/county on all the specific approvals & requirements to break ground on the project.  Construction costs looking at $70sq ft, not including land which is 82,000sq ft priced at $1,000,000 (negotiating $10-$12 per sq ft).  Any thoughts on these initial numbers?  Average rents in the area are $825/unit (each fourplex will be 850sq ft 2bd/1ba).  Also, any ideas if 12 fourplexs will be realistic for that size lot?  We are looking for any advice on where to start, initial people to talk to and questions to ask on new construction projects as we are novice in this area.  Thank you in advance to all who provide insight!

[Bill S.]

@Zach Lemaster just for a frame of reference there are currently a number of those projects underway in Cheyenne. One 4 plex is listed at $425,000. Not sure what they are actually selling for. If you could sell for $400,000 per unit that puts your value at $4.8M if you can sell each 4 plex separately. Your costs are $3.7M by your analysis. You gave a building cost of $70/sqft. Does that include soft costs? Soft costs are. Building plans that have a wet stamp that can be submitted to the building depart so you can get a building permit. Soft costs are engineering drawings for streets, curb and gutter, water, sewer and drainage plans. Soft costs are survey to subdivide the land, and layout the site. Soft costs include paving, piping and dry utilities. Soft costs include water and sewer tap fees. Soft costs include landscaping, curb, and gutter. Those costs could easily be $500,000+ ($40,000+ per 4 plex lot) depending on how everything shakes out. In the end you would have about 10% equity it appears. If you end up selling and using an agent then you might make it out with 5% equity. That is a margin of error that no experienced builders would even consider.

You also mentioned 10-12 4 plexes. What if you can only build 10? You are sunk.

Now to the broader picture. Oil prices are in the toilet and the recent growth in the population of Wyoming and Cheyenne area was driven in part by the fracking. That has gone away. There are a lot of new residential projects on the books and job growth has not kept up. I don't think you are stepping into a good economic environment. The future is flat at best.

Pass