Building a multifamily

[Keith Hillard]

Is it possible to make money building new.  Is there a certain number of units that work?  How do you project financials for new building?

[Jennifer Beadles]

Hi Keith,

I've built lots of brand new duplexes and if you can buy the land right you can make a lot of money. The challenge now is finding lots that are zoned for multi family for a decent price. What I've done in the past is go to a local bank for the construction financing package. They would finance the deal at 75% of cost with a construction loan with a one year term in which you had to refinance later. We would build at $90 per foot a 4 bed 1332 sf each side duplex. Then you have to add in the development costs (connection to utilites and permit fees). After the duplex is done, it would often appraise much higher than the overall cost, which meant you could do a cash out refi and get your initial investment back and then all of the cash flow. We would often have the surveyors locate the foundation to create a future condo project for selling the units later. 

The variables here are the land cost and the development costs, the structure costs are pretty fixed unless you build something totally custom and elaborate.

So there is not a certain number of units necessarily needed, you just need a good price on the land or else it wouldn't make sense to go through the stress of building unless you can get a ton of equity and/or cash flow.