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Updated over 4 years ago, 07/29/2020
Building a new fourplex
Hi. I own two triplexes in a small town near Phoenix, AZ. All the units are occupied and a lot of people is still asking if there are any units available. I'm thinking the possibility of building a fourplex in the ame area. At first, I thought about building two Fourplexes next to each other but I found out that regular banks don't do construction loans for investment properties any more. Now my idea is to build one building first, finance it to pull my money out and then build the other building. I'm familiar with remodeling but not too much with new construction so I'm not sure how much I'll need to get it built. I was told to consider $100 per sq ft as a rough calculation but I would like to get some advise from someone that is experienced and/or familiar with this.
Hi Juan, I would say $100 per square-foot is a safe bet. If you need any design/architectural assistance let me know.
Thanks
Bret
Find a contractor that you'd actually like to do the work. Once you find one, get a price per square foot for the first place and give him two places at once. You ought to save on costs as a result for the volume deal and increase the number of places you have available sooner rather than later.
Bret, I definitely would like some help with the architectural/design but first I would like to make sure $100 per sq ft is a safe bet. I also would like to know if I could make it with less money. I currently work as a project manager/superintendent for a general contractor. We do mostly remodeling but we also do room additions. I'm currently building a huge RV garage for one of our customers. I believe being the owner of my own project I could also act as a general contractor but I'm not sure. Have you done any multi family projects recently?
Kristina, that's a great advise, I definitely agree that bigger the quantity, better the price should be.
Working on a condo project in Temecula, CA and have a few triplex and larger housing facilities that I have done in the past. There are many ways to drive the rough estimate of 100$/sf. You can definitely save on cost by being the G.C. for the project. Are you a licensed contractor? Same goes for if you work deals with any of the vendors you currently use. A lot of vendors have marketing funds set aside and you can get building materials for lower costs.
For new construction, I recommend reading a book called Building an Affordable House by Fernando Pagés Ruiz. Awesome book with lots of tips to build a very cost efficient, high value house or multi-family property. $100/sf on the construction side is fairly accurate, but there are a lot of unknowns that need to be figured out before you ever start construction that will significantly impact cost. Estimating things like cabinets and countertops, flooring, roofing, etc are really easy to determine the $/Sf, but the real killers are stuff like bringing underground or overhead utilities into the property, the type of foundation and how much excavation is required, and making sure your units have a very efficient layout for framing to minimize material waste and the degree of difficulty for the carpenters and other tradesmen.
@Juan Ramos Where are you planning on building the fourplex and what are you anticipating the rents to be after completion of the project?
@Juan Ramos Around me, for medium level rental construction, $100/ft2 is a safe bet. That is only for the construction, it does not include land, soft costs (design, permitting, impact fees) and holding costs. Check out what existing building are selling for, and if its not alot more than your total costs of construction, Im not sure it makes sense to build new.
If your talking about building new with cash, keep in mind that a 2-4 unit building will be limited to 70% LTV. So unless you are able to build in 30% equity, you will have some cash trapped.
Contact your local banks if you need a construction loan, they are the best place to start. If you have never done a new construction project, that might be an issue, especially since you want to start with a fourplex which have more risk than a SFH or even a duplex.
@Mike Wood do you mean 70% LTC for the construction loan and 80% LTV on the operating loan?
Juan Ramos Seek out an experienced partner that can go in with you
Juan Ramos I to am considering building primarily because I think I might be able to get more bang for buck
the quotes I got were around 150-200 per square ft
Pm Juan Ramos I'd like to see if your wanting to take on any partners in the near future and also see how things go for you
I'm collecting bids and getting ready to pull the trigger on a duplex built on a lot that I currently own. Here is my cost breakdown so far.
1632ft2 per side =3264ft2 * 100 = hard cost of $326K
Builder fee: 9% of hard cost = $29K
Permit fee: I'm setting aside $18K. Estimate $15K for building and then sewer and water are added.
Tax fee: 8.2% of hard cost = $27K
Insurance for coverage during construction. ?? Still getting quote. I hope less than $1K
Plan design and engineering = $4.5K
Total all that and I'm in at $111/ft2. I'm going to finance the construction loan myself by doing HELOC on 2 existing properties. Once the project is finished, I'll take a 1st out to cover this amount and pay off the HELOC's. I'm expecting rents will be $1600/side and the mortgage will be $2200.
I love the idea of new build investment properties. I've talked to some home builders in my town, and they say their insurance only covers single family and duplex, so a four-plex was out of their scope. Anyone else heard of that issue? I'm in WA state. I definitely want to be involved in more new build discussions here!
@Paul Hone I'm intrigued by that book, but I noticed it is published in 2005. Are there any advances in home building since then? New materials, methods, etc? Can you give me a quick run down of the major points of their school of thought?
@Mike Wood Thank you so much for your input. The buildings in the area are selling between $55k to $65k per door. The thing is that those buildings are usually neglected with much maintenance deferred. Also the numbers don't make sense because they're asking too much for what they're collecting in rent. They usually only collect between $450 to $550 because the condition they are. On the two buildings I bought I installed new roof A/C units, new roofing shingles and I'm replacing some windows and adding ceiling fans. That way I was able to increase the rent and tenants are okay to pay more if they see I take care of the building. I don't mind having to invest 30% of the value in the numbers make sense and I'm getting at least 12% cash on cash return.
I would prefer to build a fourplex but if it's more difficult to qualify for a loan because it's more risky, then I won't mind building just a duplex to start building more credibility with my lenders.
So far I have only asked Bank of America and Desert Schools Credit Union and none of them offer constructions loans any more. I haven't try my local banks yet but I'm hoping they could help with that.
@Dalton Osmanski My project would be in West Phoenix where I already own two triplexes, all units are two bed and 1 bath and I'm collecting rent of $630 per unit.
@Juan Ramos With the rent numbers you stated, I dont see how your can make new construction work. My last three builds have been 2/1 or 2/1.5 per unit, and the construction cost has been between $165-200k for a duplex, not including land and soft costs. I would never consider building if your rents are only in the $600-700 range. My new construction units go for $1050-1350 per unit, which makes the numbers work. I cant see how anyone can build for much less than $75-80/ft2 on a duplex (mine run in the $90-100/ft2 range, but I don't build for low end rental markets), unless you are the GC or do a ton of the labor.
Local banks are the only way to go for construction loans like this. Some of the majors will do construction loans, but only on owner occupant single family houses. Finding banks that will do construction loans on investment property will take some looking, but they are out there and generally local or regional.
Originally posted by @Mike Wood:
@Juan Ramos With the rent numbers you stated, I dont see how your can make new construction work. My last three builds have been 2/1 or 2/1.5 per unit, and the construction cost has been between $165-200k for a duplex, not including land and soft costs. I would never consider building if your rents are only in the $600-700 range. My new construction units go for $1050-1350 per unit, which makes the numbers work. I cant see how anyone can build for much less than $75-80/ft2 on a duplex (mine run in the $90-100/ft2 range, but I don't build for low end rental markets), unless you are the GC or do a ton of the labor.
Local banks are the only way to go for construction loans like this. Some of the majors will do construction loans, but only on owner occupant single family houses. Finding banks that will do construction loans on investment property will take some looking, but they are out there and generally local or regional.
Are you only building duplexes or are you also building tri and quads? I assume you are outsourcing all of the builds?
@Jay Coombs I am have only built duplexes. As for you question about outsourcing, I hire a builder/GC for my projects. I do not act as the builder/GC.
I am gonna have to look into this here in WA @Julie Marquez. I would love to build in the Island County area. @Garen T. thank you for sharing the numbers.
When you guys say $100/sq ft, are you talking about heated living space or are you going off the entire slab?
That’s normally for livable space not for the whole slab.
@Jim Macedon My numbers are for only the living space.
Originally posted by @Juan Ramos:
Hi. I own two triplexes in a small town near Phoenix, AZ. All the units are occupied and a lot of people is still asking if there are any units available. I'm thinking the possibility of building a fourplex in the ame area. At first, I thought about building two Fourplexes next to each other but I found out that regular banks don't do construction loans for investment properties any more. Now my idea is to build one building first, finance it to pull my money out and then build the other building. I'm familiar with remodeling but not too much with new construction so I'm not sure how much I'll need to get it built. I was told to consider $100 per sq ft as a rough calculation but I would like to get some advise from someone that is experienced and/or familiar with this.
Any updates on your project? I am curious.