A lot of investors are searching now for good multi-family investment properties to purchase, but not having much success finding them.
In my new book, Don’t Buy Multi-Family! BUILD IT I talk about the advantages that multi family investors can get by building new construction properties rather than buying older properties and fixing them up.
But I think a lot of people might think that they need to be an architect or contractor to build a new multi-family property.
If you’re already investing in multi-family buildings (big or small), you’re probably working harder than you have to for smaller returns.
And It’s just not as big a jump as you think to start building your own new construction properties.
In fact the majority of big developers hire outside architects to design their buildings and they hire general contractors to build them. That’s what you should do too.
So let’s take a quick look at how it works. When a new building is developed, the expenses include Soft Costs: Like financing costs, permits and architectural design, things like that.
And Hard Costs: Which include all the labor and materials to build the property. hard costs also includes the General Contractors fee.
The owner who puts up the money and hires the people necessary to build it, is actually the developer who gets the benefit of the investment. (they get the profits).
Now they may choose to hire everyone and manage the whole development process themselves, or they might partner with an experienced developer so they have someone else to manage the whole process for them, or they could even hire a developer on a fee basis manage their project for them.
The point is that the owner/developer makes money because the property she/he is building is worth more when completed, leased up and stabilized than their cost to build it.
It’s no different than when you buy a car or clothing or anything else; The finished value (what you pay for it) is going to be substantially more than the cost to build it. This is how the company makes money.
I talked in my prior videos about this “Equity Bump”. that a new property enjoys when it’s completed and stabilized (leased and operating). This is the real game changer when you compare numbers for purchasing an existing building to building a new building.
What’s really surprising is when you see how quickly this “Equity Bump” combined with cash flow and appreciation will multiply your initial equity investment in just the first few years of operation.
So whether you’re investing in a few units or hundreds, You should definitely learn more about developing new properties,