50 acres - Weighing Development Options

[John G.]

I own about 50 acres that could be developed in central Texas. It is in city limits and a couple thousand feet from a large mobile home park. Some run-down double-wides there rent for $1400/month.

The immediate neighbors are mostly historic, but poorly maintained 1-story single family homes under 1000sqft on 1/4 acre lots.

There is a notable amount of new residential construction going on in different parts of the town, mostly new subdivisions.

Town has a population under 20,000 and is near a growing major metropolitan area. I could find fewer than a half dozen rentals posted online. Asking in the $0.70-1/sqft range per month for dated/run down and up to $1.40/sqft for moderately updated.

The property has no utilities, but they are available at the road. I currently have about 400ft of road frontage. It is 5 minutes drive from the center of town and 30-40 minutes to the major metro area.

My plan is to build and hold. I am considering building a 2 story apartment building, multiple SFRs or even a mobile home and RV park if the city will let me do it (which they may not want more of). The second story of any building would have pastoral views for several miles.

Based on preliminary discussions with a building company, the cost difference of 1 vs 2-story per sqft appears negligible. I am strongly considering prefabricated steel framing to reduce the construction time (and hopefully cost).

What I am leaning towards now is building a replicable 2 story 4-8 unit apartment building of ~1200sqft 2 bedroom units near the road (because of lower utility installation, road building and perceived maintenance costs). I am also considering single story duplex or SFR buildings.

For the apartment building, under $60,000/unit with moderate price, but high end look finishes seems doable. I am going to use some low cost value adds like higher ceilings and possibly stained concrete. I am planning to be my own GC.

I have about $150k of cash and want to take out a loan for the construction and hoping to use the land as collateral. I can get a cosigner if necessary. The land is probably worth about $500k. This will be my first construction project.

Will being further away from town center make living in an apartment complex less desirable? Would tenants be willing to pay enough more rent for an SFR to justify the additional development costs?

At this point it's a blank canvas. Which route would you go?

[Andrew Johnson]

@John G. I think @Rich Ferradino is putting you on the right path.  Maybe a couple of questions to ask yourself would be:

1.) Who lives here? Is it people looking for SFRs that they can't afford in the major metropolitan area? In essence, people come there to get a SFR instead of an apartment. Or would you be looking to rent to local residents.

2.) 8-plexes aren't near as liquid as SFRs. You could sell a portion of your SFR development to owner-occupants (or other investors) and keep the rest to rent out if you wanted. If you build 8-plexes you're only able to sell to those who want a commercial property (and loan).

3.) If you developed near the road first (and you put in 8-plexes) you'd have to ask yourself: What person who wants to live in an SFR wants to drive by apartments to get there? The answer: not too many.

4.) Depending on your profile for residents having an apartment complex that isn't near a bus stop could be an issue.  It's more of an issue (I think) in metropolitan areas but if you're looking to rent to people who work "in town" instead of "in the city" it's a good question to ponder.

That said, the first step is check with planning/zoning and figure out what (today) is eligible to be build there.  I'm also sure I missed maybe 50 other relevant questions.  But those were just a few to get you started that (in all likelihood) you've thought through.