Thanks for the comment and catching errors in my spreadsheet, @Wyatt Franta.
I fixed the error and added $10K/yr cost to OpEx (management and admin). My plan is to leverage relatives that live in LA for managing the property.
LA architects advised to use range $225-$250/sq. ft. for above ground construction cost estimate. I updated the spreadsheet just now that increased the above ground buildable area to 10K sq ft per comment from architect and the CoC return is now less than 3%. This equates to ~$23K net cash flow in the first year of operation based on 20% cash downpayment of $660K.
Also, the CoC should be much lower than the number above because it does not account for the already spent $500K to purchase the lot/property.
Given that developers continue to build similar properties in this area (example), it is clear that they achieve profitability by having much lower construction cost. For example, my total construction cost has to be around $2.7M to achieve 10% CoC with 20% downpayment.
It is quite peculiar that developers in my area develop lots that are recently purchased. For the example above the lot was sold for $800K+, which further reduces the budget left for construction (demo existing property, clear the lot, excavate, etc.).
Given the spreadsheet projections above it looks like for me it will be a prerequisite to act as an owner builder via hired construction manager in order to achieve 10% CoC the first year of operation.
Any thoughts on multifamily construction cost in Southern California?
