New construction duplex project

[David Held]

I've been investing in land for the past 3 years and making decent returns by either adding value with obtaining development approvals for tough parcels or subdividing larger parcels and selling lots. I'm an engineer and land surveyor so I've been able to do all the work myself and I'm fortunate to have the knowledge and experience to very quickly evaluate potential deals in my local market. Having worked in a W-2 environment for the last 20 years, I've now had my eyes opened to the incredible wealth building power of residential rentals versus the "quick fix" and subsequent tax bills from the land deals I've been doing. With that said, I now own a parcel on which I'm planning on building approximately 25 duplexes (50 units). The property will be subdivided and each duplex will sit on its own lot. My all in cost for each building will be approximately $250,000 ($125,000 per unit). The conservative market rental rate is $1,500/month for each unit. Taxes would be around $2,500/unit per year. I believe that by next spring when I would likely start construction, I should be able to build at least one building with cash we have on hand and perhaps two buildings with cash. While we're talking with a potential partner who owns lots of mobile home parks and apartments and would bring in the capital to build everything at once, we're also considering building out this project on our own. The plan would be to build the first building with cash and get it rented. At that point we should still have adequate cash on hand to immediately start the second building and we can do a commercial refi on the first building. I've been told by a few more experienced people that a commercial lender would typically use a cap rate of around 8% to determine the value, in which case we'd be able to pull all of our money out and still have strong cash flow. Ultimately, we'd keep repeating this pattern until the project was built out and fully rented, essentially using the BRRRR strategy with new construction. Since this is our first project like this, I'd love opinions from those with more experience...do you see fatal flaws with the strategy, are we missing the boat on anything huge, etc. I'd also appreciate any thoughts on what the value of this whole project might be when it's completed and stabilized. Would a 6% cap rate be reasonable if we wanted to sell and then 1031 into other properties to build a portfolio? This project has lots of appeal because our cash investment in the land we're developing is almost nothing and we have the security of just being able to sell lots to all the builders I work with. It also allows us to gain experience with managing rentals as it's built out and we don't have to go looking for deals to scale the initial portfolio.