Multi-family construction project

[Lauren Thomas]

Hello Bigger Pockets Community!

We would appreciate your advice….

Background: our intent is to build a multi-family triplex with a long term buy and hold mindset. The current state…

• * We own a multi-family zoned plot of land in Hernando County, FL
• * We’ve secured a multi-family (Tri-Plex) construction loan with a local bank
• * We’ve signed a construction contract with a local builder
• * The project has advanced…site prep has begun and the permit package has been submitted to the county (Hernando County, FL)
• * Last week the county has informed us all multi-family construction projects larger than a duplex will be considered commercial. Commercial projects require sprinklers in all units, ADA (in 1-unit), a civil survey, DRA, etc., etc. All items which were not planned in our project.
• * Initial project cost increases for construction alone are estimated to be $50K-$70K (i.e., due to the need for sprinklers, DRA, ADA, etc.). In addition to the increase in construction costs, we’ll likely have to restructure our construction loan with the local bank which may equate to lost closing costs (e.g., $8K - $10K).
• * Initial proforma excited us, with CoC and long-term IRR exceeding past multi-family purchases we've made over the past 2+ years. With increased costs due to commercial designation by the county (e.g., sprinklers, DRA, ADS, etc.) CoC and IRR are still favorable however not as exciting (e.g., likely running par with current inflation numbers)
• * Since this project is likely getting ‘blown up’ due to the commercial designation by the county, we’re now considering alternative designs to maximize the project. The lot is zoned multi-family up to 4-units and we’re now considering a 2-story Quadplex (the lot will not accommodate a one story quad due to setbacks). Initial proforma for a 2-story quad looks intriguing.

My Question:

Do you have experience managing / operating a 2-story Quad or similar 2-story small multi-family property? If so, any insight you have on how a 2-story unit may / may not impact vacancy and turnover due to variables such as:

• Complaints from downstairs tenants related to upstairs noise
• Lack of a garage
• Walking stairs
• Living in an ADA unit, if not needed (1-unit has to be ADA per the county)
• Other?

Thank you in advance for taking the time to consider this case.

Thanks,

Chad and Lauren Thomas