Multifamily: To buy or to build...that is the question

[Mike Hoherchak]

What are your thoughts?

I live in eastern PA and I'm learning that inventory of residential multi-family properties are very slim within my price point. The inventory that is available seems to be really old and run down and expected to have much deferred maintenance. 

With this in mind, I've been thinking what it would take to just find an acre or two and build my own MF. I recently learned I could do this with a local prefab company that can make a 3 unit. The average rent in my area is roughly $1396 with a +2% change year over year. So with a brand new build I think I could get $1200/m on the low end up to $1500 depending on location.

The market I live in is doing well and more and more people are moving into the area due to cost of living and easy access to major metros within a 2 hour driving radius. The down-side is that the local municipalities and townships are a bit unfavorable to MF since they are trying to keep an "american dream" feel within the area (ownership of SFH are preferred). Needless to say, there might be a challenge with zoning if I'd like to build or turn a large SFH into a MF.

Whether I buy or build my plan is to owner-occupy, paid for with a 0% down VA loan. I plan on moving out after 2 years and holding this property for cash flow for as long as it makes sense. This will be my first investment property and I'm leaning more towards building.

Knowing all this, what are your thoughts on building a prefab MF vs buying one of the existing inventory? Pros? Cons? 

Any insight would be much appreciated!

[Greg Dickerson]

@Mike Hoherchak I have family in Bethlehem so a little familiar with the Lehigh Valley area. For the most part you can almost always buy cheaper then you can build. Development cost or at all time high right now, zoning can be difficult and time-consuming. Construction is risky if you’ve never done it before. All that being said if you can find the right land at the right price you may be able to make it work.  The biggest thing when looking at land is to check local city and county requirements, utilities, permitting cost, engineering costs, site work needs etc.