Multifamily development in Kentucky, Indiana

[Wes Singleton]

I'm curious if anybody here is developing small multifamily.  I would like to make the jump from my single family rentals to development of small multifamily, but information on the subject is hard to come by.  Plenty of folks are fighting over existing inventory, but I'd love to hear if anyone has experience building them.

[Michael Seeker]

@Wes Singleton - I looked into this years ago.  What are you considering "small" to be?  What areas would you be interested in developing in?

My limited research was on urban infill of around 3-6 units.  The code requirements are the same for anything from 3 or 4 units and up, so it is very cost prohibitive to build a 4-plex when you factor in things like sprinkler systems, exit signage, parking requirements, etc.  It would also be difficult to find infill lots in the city where this is already allowed by zoning.  Things would get easier to do if you go down to a duplex in terms of viable lots and code, but that's a lot of effort to end up with two units at the end of it when the current market would likely support better returns on a spec single family home.

[Wes Singleton]

@Michael Seeker I'm thinking between 8 and 12 units. I agree that for 4 plex or smaller the numbers may not work. I also looked into this a few years ago, but decided against it because at the time, you could buy pre-existing so much cheaper. But as the economy changes, cap rates for pre-existing are getting so small, at a certain point it has to make sense to build.

[Michael Seeker]

@Wes Singleton - that is a good point, however on the development side of things you're looking at highly fluctuating (increasing) material costs as well as challenges on timing due to labor shortages.  A 6-month delay on a 8-12 unit new build could cost you $60K+ in missed revenue.

I'm not suggesting it doesn't make sense or trying to discourage the idea.  Just throwing out some reasons why there aren't a lot of small multifamily new builds going in.

[Wes Singleton]

@Michael Seeker yes, that would be a risk. I'm going to dig a little deeper.