Investing in Residential Construction?

[Brooke Larson]

It seems like there hasn't been much discussion about new residential construction projects and the opportunities they offer. Given the potential for high returns, customizable involvement levels, and significant tax benefits, I believe this is a great investment opportunity, particularly in markets experiencing rapid growth.

I've been keeping an eye on developments in Georgia, where builders are struggling to meet the surging demand driven by population increases in certain areas. This presents a unique opportunity for investors!

Let's kick off this discussion— if you've ventured into residential construction investments, could you share which market you're in, your experiences or challenges, and any advice for newcomers?

Also, if anyone's curious about investing in residential construction in Georgia, feel free to reach out. I have connections with an experienced building & financing team and would love to keep the conversation going!

[Kerry Noble Jr]

I agree with this but im in central IN. I listen to construction podcasts often too!

[Brooke Larson]

Quote from @Kerry Noble Jr:

I agree with this but im in central IN. I listen to construction podcasts often too!

Awesome! Do you mind sharing a bit about your construction experience in Indiana? What construction podcasts do you listen to? 

[Kerry Noble Jr]

Quote from @Brooke Larson:

Quote from @Kerry Noble Jr:

I agree with this but im in central IN. I listen to construction podcasts often too!

Awesome! Do you mind sharing a bit about your construction experience in Indiana? What construction podcasts do you listen to? 

 I've done about 3 rehabs and managed about 3 for others. Would love to get into new construction.

"the construction management podcast" and "the construction leading edge" podcast are the 2 that I've listened to the most

[Scott P.]

My 2nd duplex was a new build in Indiana.  I just finished gathering pricing for a new build.  It was 30% more than I initially estimated.  I'm reducing the footprint and repricing....

[Robert Ellis]

Quote from @Scott P.:

My 2nd duplex was a new build in Indiana.  I just finished gathering pricing for a new build.  It was 30% more than I initially estimated.  I'm reducing the footprint and repricing....

 finally a smart person. our floorplan for each unit we build is 668 sq ft and 2 beds for that exact same reason. people that Aren't in cheap markets don't understand. in columbus we face appraisal issues if we don't keep it as small as possible. 

[Brooke Larson]

Quote from @Scott P.:

My 2nd duplex was a new build in Indiana.  I just finished gathering pricing for a new build.  It was 30% more than I initially estimated.  I'm reducing the footprint and repricing....

Very interesting! Do you focus more on multi-family builds versus single family? Is the new build similar to your 2nd duplex, how much time between the two? That seems like a rather large price hike! 

[Scott P.]

Quote from @Brooke Larson:

Quote from @Scott P.:

My 2nd duplex was a new build in Indiana.  I just finished gathering pricing for a new build.  It was 30% more than I initially estimated.  I'm reducing the footprint and repricing....

Very interesting! Do you focus more on multi-family builds versus single family? Is the new build similar to your 2nd duplex, how much time between the two? That seems like a rather large price hike! 

@BrookeLarson, Over 25 years between the two. I do a little of both. The new build looks like a SFR. So no, not really similar to a 2-family dwelling.

I've drawn the new build for an owner-occupant to have a single family home but with the option of having a "tenant"/roommate or family member (perhaps in-laws, or elderly parent/grandparent, or a brother/sister, who wants private, separate living space, etc.) living in their own space with their own separate utilities. This gives the Owner the best of all worlds - SF or STR/LTR - enabling keeping the home affordable for home owner while also providing an affordable place for a friend or family member to live, all while having privacy for both.

The 30% is just the difference between the total of my experienced estimate of what the build would have cost just 3 or 4 years ago plus a factor for the current period of inflation, versus the total of the bids that came in.  It's 30% more than I expected even though I was expecting to pay more than I would've just 3 or 4 years ago.   

A well known, senior Builder in my area quoted this new build from the same prints and for the same lot in the spring of 2021 after buying the lot in the fall of 2020.  I decided not to build at that time.  The bids now total 61.3% more than that Builder quoted. I expected it to cost 30% more than 2021, not 60% more. There are Scope differences between now and then.  I downsized the heating and air system but added a 2nd, separate system.  I upped the electrical service from 200 Amps to 400 Amps to accommodate future car charger(s).  I added rough-in only of a back-up generator.  And also,.... I deleted the Builder.  Builder's save people like me a lot of time and they earn their fees.  However, the largest line item in any new home construction cost for this type of home is the Builder, followed by the framing package and then the foundation system.  Even deleting the Builder left me 30% higher than I expected on this small, custom home.  So it's unaffordable at this time in my case to pay someone to Build i.e. be the General Contractor.  Had I hired that Builder or someone else to build it 4 years ago I'd have save 62% as well as a huge amount of time being the GC.

So, this build isn't just 30% more than that duplex I mentioned.  It's 30% more than I though it would be, even allowing for the recent inflation. So to answer your other question,  the estimated cost for this build 3 times the cost of that duplex build for roughly equal square footage and including the lots and utilities and everything for both.  If I add 10% for the Builder/GC for this new build, it would be 3.25 times the cost of that new build duplex 28 years ago.   (Keep in mind that duplexes have 2 kitchens, 2 HVAC systems, a garage on each side, etc.)

[Robert Ellis]

Quote from @Brooke Larson:

Quote from @Scott P.:

My 2nd duplex was a new build in Indiana.  I just finished gathering pricing for a new build.  It was 30% more than I initially estimated.  I'm reducing the footprint and repricing....

Very interesting! Do you focus more on multi-family builds versus single family? Is the new build similar to your 2nd duplex, how much time between the two? That seems like a rather large price hike! 

 building multifamily is one of the lowest risk strategies out there. single fam has no economies of scale and in columbus right now I would argue that the cost of a garage is greater than the value you even get for an appraiser. so a 400 sq ft garage if that was heated space is worth 5x to 6x. because of that, we build multifamily more because of the economies of scale as well as density, increased rent coverage, etc etc