Build Apartment Complex or Purchase One? SF Bay Area

[Wesley Hu]

Hi All,

First post here, glad to discover such a wonderful platform to meet other like minded people.

I'm currently in an interesting investing situation and would love input from other investors!

I'm looking at a few properties to purchase and have narrowed it down to 2.

One is a quad-plex apartment building worth about ~$2mil, and the other is a single family home situated on a hill next to the downtown. Purchasing the quad-plex would be straightforward, although gross rental income would only be around $100k/yr. Purchasing the other house to demo and reconstruct an 8-10 unit MFR would generate much more income for the long run, but we would have to put in a large initial investment and take quite a hit in terms of time.

My main concern is that I have interest in demolishing the house and creating a multi family residential, but we are totally new to this so I don't think it'll be a great idea. We are extremely knowledgeable when it comes to single family homes, duplexes and basic commercial properties, but we have never looked into large apartment buildings. 

Some info:

- The city actually pushes for development of the property into an MFR up to 20 units.

- The front part of the house is totally flat, but the house itself is up a steep hill which is flat on top as well.

- The house itself is quite beautiful and generates $5-5500 in rent per month if we do not demolish and rebuild. 

- Right next to the property is a 20 unit apartment complex, 3 stories, worth $10mil and generates about $650k in gross rental income.

- We have 6 other properties in the South Bay Area, almost no mortgage so I believe we have a higher risk threshold.

Does anyone know roughly how much it would cost to build up to a 10 unit MFR, timeline, etc? We have roughly a budget of around $2-3mil excluding acquiring the property without financing for this particular deal and would look into a construction loan if necessary. I know when it comes to construction every project is unique, but I would like to know if anyone has done anything like this in the Bay Area (Peninsula down to San Jose Area).

I welcome any and all insight, much appreciated and thank you to all who took the time to read!