Does small ground-up work in a rural market or is 20 units the floor

The half of replacement cost line is the one that keeps me out of development entirely so far. If existing stock trades at $60k a door and building costs $180k a door, why would I build. But hollow, you're describing a market where existing stock might not exist at any quality, so maybe that comparison doesn't hold the same way.

$22k a unit soft cost on 8 units versus $11k on 24 is a $88k swing on the small project. That's basically one unit of your building. If I'm reading that right the small project is starting a whole unit behind before anyone digs.

I've been in analysis stage long enough to know I'll find a reason not to do either, so take that for what it is.

Different angle, but who rents an $850 two bedroom in a town of 6,000, and is that pool deep enough to fill 8 units at once? My first rental is in a small market and the thing I keep reading about is how thin the applicant flow gets. Filling one unit is fine. Filling eight in one quarter is a different problem.

wren asked the question I'd have asked. I want income without a second job and this thread reads like the second job.

hollow, before the build or buy question, do you know what the local bank will actually do on a construction loan for 8 units? Loan to cost, recourse, the conversion test, whether they'll do the mini perm themselves or make you find takeout financing. In small markets that's often the binding constraint, not the pro forma. I'd get that in writing before I paid an architect.

Also impact fees vary a lot by jurisdiction, worth pulling the actual fee schedule rather than estimating.

anchor's right that the bank answer comes first. A small local bank doing a construction loan on 8 units in a town of 6,000 is usually going to want recourse and a real deposit relationship, and their appraisal will lean on comps that may not exist for new construction out there. When the appraiser can't find a new-build comp, they fall back on existing sales at $60k a door, and now your loan is sized off that rather than your cost. That gap comes out of your equity. Terms and appraisal practice vary by lender, so ask them directly how they'd handle the absence of comps.

The appraisal point is new to me and it's the most useful thing in this thread. So the loan can be sized off value rather than cost even though you're spending cost? I've been reading about notes and I hadn't connected that the same gap shows up here.

vellum, yes, lenders generally size to the lesser of a percentage of cost and a percentage of appraised value, and in a thin market the value side binds first. tender described it well.

hollow, I own small multifamily and every unit has taught me something, so here's what mine taught me about your question. I looked hard at building 6 units in a similar market and didn't. What stopped me wasn't the soft cost per unit, it was that I'd have created the only new product in town and had no idea what the ceiling rent was. $850 is what existing stock gets. Nobody could tell me whether new construction gets $1,100 or gets $875 because the tenant pool won't pay for new. If it's $875 you've spent new construction money for old construction rent and the deal never works. If it's $1,100 you might have something nobody else can copy.

I'd spend $2k on a real market study before $2 on an architect.