New Construction for Rentals

Hello, I have been reading this board for several weeks. Ordered property manager’s book, which I enjoyed. Here is my question: is there a scenario in which you would consider building rentals. I am familiar with the formula’s listed in the book. But wouldn’t your maintenance costs be much less with new. How would that affect your formula.

A specific scenario I am looking at…there is a duplex for sale that is cash flowing based on Rent versus PITI, but not per the formula using 50% of gross rent. This duplex is on a double lot and I could build another duplex next to it so the same lot would now have 4 tenants instead of 2.

Just kicking around thoughts and ideas. Appreciate any feedback and thanks.

I’d like to see what the board has to say on this.

I looked into building some MFH’s early last year, and the numbers just didn’t work out. We were looking to build du- or tri- plexes, 3/2, 2 story, 1100 sf, no garage. numbers didn’t work out… the lot plus the $55 psf cost to build was too much to only get 800 - 900 back on rent (keeping in mind that a sfh rents for about $1,000 in Houston.)

i think we could have pulled it off, but we’re better off getting 3/2/2 1500sf sfhs.


The rental business all comes down to the numbers. Therefore, to properly evaluate what you are proposing, you would need to put together all the numbers. Would the maintenance expense be lower for new construction. Yes, a little. How much? That would be impossible to predict. Maybe instead of the maintenance being 10% of gross rents, it would be 5%. It is certainly not going to be zero - tenants are VERY hard on rentals.

Good Luck,


thanks for the responses. Mike, I have enjoyed your direct and honest posts on this board, and your book was written in the same manner, which I enjoyed. No nonsense, cut to the chase.

By the way, it’s taken me longer than a minute to my rental property riches. I must not be very smart. :cool

I have often wondered the same thing that you have asked, I just can never get the numbers to work on construction. Good post.

Something to take into consideration is how long you plan on holding these units for. The reason I say that is because they are not going to be new forever and will require maintanence down the road. The 5% reduction in maintenance will only last so long, maybe 3 -5 years. Just some thoughts. Good luck.

You’re better off finding burned out landlords and doing a little fixup on existing rentals. A little frustration on the landlord’s part equals a big discount on your end. Unless you get the land for free and some cheap labor I don’t think you can beat buying beatup used buildings.

I would however consider building if it were for large slightly upscale 55+ buildings. One just went up near me and I think the owner is going to make a killing. I’m telling you, these baby boomers are a good meal ticket for us younger folks.

By the way, it's taken me longer than a minute to my rental property riches. I must not be very smart.

I’m not very smart either. The “1 Minute” is a sarcasm of all the silly '“guru” promises of instant riches without work. RIDICULOUS!

Mike (still waiting for the instant riches)

We might be able to get some of the money back that we pumped into social security :biggrin, which we will probably never see.