Comparing a New Build Duplex to Conventional rehab/rental

[Andrew Laurence]

I'm tired of getting robbed by inflation! I have a big chunk of cash saved that I need to put to use, but I'm having trouble determining the value of a new build vs a more traditional deal just buying a rental and rehabbing.

I've been presented with an opportunity from a builder to build a new duplex in an area which can be used as short-term or long-term rentals in Knoxville, TN.

The builder is a rare combination of fast, cheap, AND quality, and has written a "cost-not-to-exceed" clause into the building, so it's an extremely competitive build cost (details below).

The deal would cash flow very nicely, but it would force me to leave a chunk of cash into the property.

Here are the numbers:

duplex: each unit 2:2, 900 sq ft

Total cost of land, 1.2 acres (This is already leveled, excavated, and prepped for building): $80k

Maximum build cost: $252k

Total cost: $332k

Cash in: $67,000

ARV: $350k

Approx cash flow: $800-1,100

So, again, how does this compare to a typical buy/rehab? One thing to keep in mind is that I'm a Physician Assistant student and work and do not have the time or desire to manage a rehab right now.

[Scott E.]

Your comment about the builder being fast, cheap, and quality has me a bit concerned. I hate to say it but what they say about contractors is true in my experience (the best you'll ever get 2 out of those 3 traits)

With that being said, the not-to-exceed clause is great. And $252k to build a duplex with 1,800 SF of total livable space isn't all that unrealistic. It would cost more like $350k to build that in my area, but probably just due to region.

As far as your last question goes, you can't really compare this deal to just any other random "typical" buy/rehab deal. Every single deal is unique and comes with its own pros and cons.

I recommend you underwrite this deal on its own. And if it checks all of the boxes in terms of cash flow, return on equity, risk, etc then go for it.