How accurate is Cost of Construction mentioned on permit?

[Ravi Chandra]

Greetings!

I've been a passive investor but venturing into BRRRR zone. I was scanning through permits pulled from county website. There is a cost component. How accurate is this number?

I've narrowed down couple of lots ~1000 sq ft. Interested in building quadplex. If experts can ballpark, how much will it cost to build a quadplex(excluding land cost)?

Appreciate you input. TIA

[Stuart Udis]

You can't go off of the cost estimate on permits and even beyond that, design, site work and a number of other factors will play a significant role in costs. It's not like comparing apples to apples where you can view one 4 unit building against another unless you are building identically permitted buildings on parcels that share the same site conditions. For illustration purposes a quad consisting of all one bed one bath units will cost a lot less to build than a quad consisting of all 3 bed 3 bath units..... A detached quad consisting of four one bed one bath units will cost significantly more than an infill quad consisting of four one bed one bath units etc..

Lastly, there are very few zoning districts in Philadelphia that would allow for a 4 unit building to be constructed in Philadelphia on a parcel that is only 1,000 SF and from a practical standpoint the units will be quite small when you consider the need for open area and common halls/stairs. I would recommend reviewing the zoning closer before purchasing any of the parcels you are currently vetting. 

[Ravi Chandra]

Thank you Stuart and I really appreciate your detailed response. Looks like the only way to get cost of construction for a comparable property is from the owner or from the builder. 

How does any first timer like me venture into this space without knowing what the cost of project going to be?

[Stuart Udis]

I believe the biggest obstacle you will face is the need to rely on a 3rd party builder for a 4 unit building. Good general contractors, particularly  those who build ground up must have financial means to advance projects outside of merely relying on your bank draws  and construction knowledge. Most who possess both attributes recognize its more profitable to simply build for themselves which leaves very few qualified builders for 4 unit ground up projects and those who are truly qualified have to be incentivized monetarily to take on such a build which cuts into your margins. I previously relied on 3rd party GC's building quite a few single family to 4 unit buildings throughout Philadelphia and eventually transitioned to self performing. Most come to the same conclusion. I believe that will be a paint point for you and may be better to simply buy a recently constructed building where there's less risk and far less time involved. If you feel strongly about building, working with a good design team will be helpful.