Hey guys, it's Monday. That means it's time for Mentorship Monday. Thank you for watching,
by the way. If you guys have real estate questions, you want to submit to Mentorship Monday, you
want to email those to: helpme@derosagroup.com. That is: helpme@derosagroup.com and we will
take those questions and we will answer them right here on the YouTube channel on Mondays
for Mentorship Monday for you and for others to watch and learn from. So it's helpme@derosagroup.com.
Today's question comes from Jonathan, who was originally from Costa Rica, but has moved
to the U.S. because his father passed. I'm very sorry to hear about your father, Jonathan.
You are here in St. Lucie County in Florida. So it sounds like Jonathan's living in the
duplex and perhaps that's something that you purchased, or perhaps that's something that
was an inheritance or whatnot. But Jonathan is looking to ramp up his real estate game.
Great. Congratulations. He wants to talk about construction of multifamily to purchase, build
out and own, versus buying existing multifamily. So I got to tell you, I've looked at this
myself and unfortunately, where I am in New Jersey, it doesn't make a ton of sense. Although
it's starting to break to the point where it does because rents have gone up here and
prices have gotten a little more reasonable on construction costs and things like that.
So you got to weigh out the numbers and there's some parts of the world where building apartment
buildings or building rentals, even small stuff like you're talking about a five unit
here, but that kind of scales up to larger stuff too ... There's parts of the world where
it doesn't make sense in parts of the U.S. Where it doesn't make sense. There's parts
where it does that. The governing factors are obviously what rents you can get from
the building, what you would pay for the land and what you would pay for construction.
You've got to extrapolate all those things out and put them into a spreadsheet and say,
okay, I'm purchasing land for this; it's going to cost me this to build the building. When
all the smoke clears and the building's done and you compare that to the cost of purchasing
an nonexisting apartment building and doing some renovations to bring it up to snuff,
most of the time, building a new building is going to be more expensive. But the way
that you want to look at that is you could probably command higher rents because you
can build to a higher standard and make it a premium product. It's going to be more affordable
to do that than it is to take an existing apartment building that's defunct and maybe
it's got some outdated features, to do a gut renovation on that building, unless you get
it for an absolute song and then you can build it up from there and make it, make it a premium
product.
So you want to weigh all these things out and put in maybe a little above market rents
that you would get for your new construction building and all the construction and see
if you get the return that you want to see in doing that. So some guidance that you should
do, you say here in the email you're looking to do a five unit apartment building, maybe
a little on the small side. You might find that for the cost, you may need to scale up
a bit larger and go to a 10 or 15 unit because you're going to have to pay for zoning and
engineering and architects and things like that to design the structure, which is pretty
much going to be a flat fee, whether or not you're doing a five unit or a 10 unit building.
And so I would consider going larger so that you can spread those costs out across the
larger building.
You don't have to go to a 50 unit, but maybe scale up a bit more than a five unit building,
something a bit larger. A second piece of advice is look at modular construction. I
think that's fairly common in Florida. Although, I haven't done any work in Florida. But look
at a modular construction, a lot of reasons why that's of interest and for all your other
folks watching, you should consider that in your part of the world. If it's done frequently,
where you are, I hear in the Northeast, et cetera, very commonly because a lot of the
factories are just across the bridge in Pennsylvania from us. So a lot of people do modular here
and they may be doing that in Florida as well. I've heard that they do.
You can normalize your cost of construction. You can, it's very predictable. You can also,
most importantly, get the boxes very quickly to build an apartment building. This modular
company might even have a model for a small apartment building already designed. You don't
have to pay the design fees. You can go to them and maybe buy something right off the
shelf for "off the shelf". Like they've got an apartment building sitting on the shelf.
But you know what I'm saying? They've got a design sitting, they can just pull it and
plug and play for you. So I would consider that as well.
So these are all the different factors. But again, bottom line, Jonathan, is you want
to weigh out the cost and shop the market for an existing apartment building and what
rents you can get. And then you want to shop for what the cost of new construction would
be. And just put it in a little spreadsheet and put them up next to each other to see
which one seems to make more fiscal sense.
The biggest thing I haven't talked about yet is the land cost is what you can get that
land for. If you've got the land for next to nothing, or if you can get a land owner
to partner with you on the deal to contribute their land to your project at lower, no cost,
and maybe give them some skin in the game on the apartment building or refinance the
building when you're built to pay them out on the backend, then that's a great way to
go about it. And that's kind of a quasi joint venture and you got to have lawyers involved
in that. But it's a good way to get the land owner to contribute the land to your project.
If you can't do that, you've got to watch how much you pay for the land to build this
building. So lot of chunks of information in there in this Mentorship Monday, guys.
This is a good one, Jonathan, so good luck to you.
Building apartment buildings is an interesting topic. I think that it will become more and
more common as we move forward, and as rents, I think, continue to creep up. It's my crystal
ball prediction. It's probably not worth much, but that's what I think things are going to
happen. And I think it will cause more, more and more build out of these things.
So anyway, guys, that's it. Thank you for watching. Again, helpme@derosagroup.com. That's
helpme@derosagroup.com if you want to submit questions to get answered here on the YouTube
page. Thank you, Jonathan. Coming to us from Florida and then from Costa Rica before that.
So we do appreciate your question and thank you guys for watching and have a great profitable
week.