With developing it is all in your plan. Apartments can be built cheaper than condos, because your not adding a lot of the extras. You might want to go be a secret shopper and look at some of the apartments in the area. My guess is there are no upgrades - basic kichen cabinets, basic appliances etc. There are several programs out there right now that you can get cheap money for the purpose of market rate apartments.
I grew up with my dad being a commercial builder - he built mostly apartments and strip malls. It is a tough business to build them. Everything is purchased in large bulk orders, but it brings your costs way down.
I would recomend looking for a builder to partner with? offer to pay overhead and give them part of the deal? I’m sure you can find one. I’m a SC liscensed builder and have look for those types of deals.
I’ve saw the storage condos before. I don’t know how well the sales of them do. The ones I saw could either be storage or even a small store/office front. They had the option of a bathroom, airconditioner and they were offering the option of a small kitchenette with 2 burner stove.
I found a 5.18 acre parcel with 2 fronts. 1 with a major road that is being upgraded to a 7 lane road from a 3 lane road, and another that is the border of residential houses. The frontage on both sides are 165 SF with 1320 SF long. Asking price is $1.2mil and they are willing to do a $600k carryback at prime for 1-2 years(old couple, just relocating) At first glance I thought it would be a great place to put storage units, but within 1 mile of the property on the same major road, there are 3 more other storage unit complexes, making it not worth it because of the competition. So I thought the property would be subdividable into 2 parcels, dividing the front on the major road and the front on the residential road. This would create the opportunity to build out apartment complexes in the back portion where the residential area is and build a commercial frontage in the front major parcel. The problem is when I calculate the numbers I don’t see how developing apartments in this area could be worth it, even with free land. If I could build 60k SF of multifamily on the 4.18 acres and 17k sqft retail strip on the remaining acre that would cost at least $7.7 mil at $100per/SF for construction. That would not even include the cost of land.
Property around here seems to be renting at $12/SF for apartments making gross rent $720k calculating 10% vacancy rate $648k - 40% expenses= $389k NOI. Adding the commercial NOI approx $197k ($17/SF*17k=$289k-15%=$246k-20%expenses=$197k NOI)= Total NOI= $586k
Calculating value at 7%cap = $8.4mill
Are my calculations just all messed up, or does it just not make sense to build apartments in this area? I’ve never developed before so I’m not exactly sure how much it would cost SF wise, I was really just guessing. But I couldn’t it imagine it being less than $100/SF to build. I’m in the Tacoma, WA area 40 min south of Seattle(specifically Puyallup).
What else could be done to a property like this that would actually make sense??
Sam, while I know others will disagree with me, I was told something by another investor that I see to be true for the most part-
Most of the time, the first and even the second owners of a property don’t make much, if any, money on the deal. It’s often the third buyer and beyond that makes the money on the deal, when the property can be purchased below replacement cost…
The numbers you are projecting hold true to that, in reality… Unless you are a builder, where you can really lower the cost of the build, it’s quite difficult to develop something that makes sense… Unless you were building them as condos, or SFH’s and could sell those off at $250 / sqft or something equivalent…
If it is a prominent corner, perhaps you could acquire the property and find a commercial developer who would enter into a land lease with you for it, and let them do all the building…
I always thought developing was where the money was at, but now that I have an opportunity, after running the numbers I see that it’s not really the case. Have you ever heard of storage condos?