Building Your Future: A Beginner's Guide to New Construction Multifamily Investing

Have you ever considered the potential of building wealth through new construction multifamily investing? It might seem daunting, but understanding the process from the ground up can reveal exciting opportunities. Join us as we walk through a 30-unit apartment complex being built in Trenton, New Jersey, with real estate experts Matt Faircloth, Hervé Francois, and Adam Ross. This is your beginner-friendly roadmap to understanding the world of multifamily development!

From Empty Lot to Thriving Community: Key Stages of New Construction

Follow along as we explore the different phases of this project, offering clear and simple explanations for anyone curious about real estate development. Witnessing a project transform from an idea on paper to a physical structure is a powerful learning experience.

Decoding the Numbers: A Simplified Look at the Finances

Understanding the financial aspects is crucial for any investment. Here’s a simplified breakdown of the key figures discussed during the site walk:

• Land Acquisition: The half-acre of land was acquired from the city of Trenton for $150,000. This demonstrates the potential for finding opportunities through local government partnerships.

• Initial Construction Costs: The initial estimate to build the 30-unit complex was $7 million, equating to approximately $175 per square foot. This provides a general benchmark for the significant investment involved in ground-up development.

• Total Project Expenses: Factoring in additional costs like interest on the construction loan, the total projected investment is around $7.8 - $7.9 million.

• Financing Structure: The project is being financed through a $5.5 million construction loan combined with $2.5 million in investor equity. Notably, the construction company itself invested $500,000, showcasing their confidence in the project's success.

• Expected Rental Revenue: With anticipated rents of $2,000 per unit per month, the property is projected to generate a gross monthly income of approximately $60,000.

• The Advantage of Tax Abatement: A significant financial benefit is a 20-year tax abatement secured from the city. This means property taxes will be calculated solely on the land value, not on the newly constructed buildings, drastically reducing operating expenses and boosting profitability.

• Anticipated Property Value: Upon completion, the property is estimated to be worth around $10 million based on current market conditions.

Smart Value Adds: The "Two Balcony" Innovation

One of the most insightful lessons from the site walk was a clever strategy to increase revenue with a minimal investment:

• The Challenge: Some units were designed with two balconies, an amenity that doesn't typically command significantly higher rent.

• The Solution: By relocating the extra balcony door to an adjacent unit that lacked one, they could charge an additional $200 per month for that unit.

• The Investment: The cost to move two doors and reframe the openings was a mere $2,000.

• The Return: This small $2,000 investment is projected to generate an extra $400 per month or $4,800 per year in rental income – a substantial return.

Simple Value-Add Ideas for Any Rental Property Owner:

Inspired by this innovative approach, here are a few more cost-effective ways to enhance your rental properties:

• Installing Dishwashers: A relatively inexpensive upgrade (around $500-$600) that can justify higher rents.

• Upgrading Kitchen Faucets to Gooseneck Style: A minor cosmetic change that tenants often appreciate.

• Adding Ceiling Fans in Bedrooms: Improves comfort and can be done for approximately $100-$200 per unit.

• Providing Washer/Dryer Hookups: A highly desirable amenity that eliminates the need for off-site laundry.

Building Your Multifamily Portfolio: It's More Achievable Than You Think

Many believe that multifamily investing in new construction requires vast resources. However, Matt's journey of building a portfolio of over 2,000 apartment units demonstrates that with the right strategies for raising capital and finding deals, it's more accessible than you might think.

Your Free Guide to Multifamily Investing

Ready to learn the foundational steps to acquiring your first apartment building? The DeRosa Group offers a free six-day course that guides you through the entire process, from securing funding to successfully closing your first deal.

FREE COURSE

This site walk provides a valuable educational experience, offering a glimpse into the complexities and significant potential of new construction multifamily investing. While it demands careful planning and substantial capital, the rewards, particularly when combined with strategic value-add initiatives and favorable local incentives, can be substantial.

What aspects of new construction multifamily investing are most interesting to you? Share your questions and insights in the comments below!