Apartment building reconstruction (4 convert to 8 unit).... any reason not to?

[Deleted member 4644]

Let's say you own a 4 unit building on some land that could support an 8 unit structure and you have the cash to knock it down and rebuild it bigger. Let's also assume you are almost positive you can fill the 8 units and you can afford the loss of income as you are rebuilding.

Is there any good reason NOT to do so?

PS for the record, this advice is for a family member who is clueless about investing...

 

[WyteWatt]

Would there be adequate parking for all the tenants?

 

[Phoenix86]

ROI?

 

[JS80]

Originally posted by: Phoenix86
ROI?

+ NPV

If NPV > 0 do it, if not, don't.

 

[ggnl]

How much will it cost to rebuild?

How much more revenue will you pull with the new units?

How fast do you want to recoup the money you would invest in the new units?

 

[jaedaliu]

insurance going up? might be more worthwhile to buy a 2nd complex when you compare money lost due to construction and equity gained with a 2nd piece of land.

 

[Ornery]

"Any good reason NOT to?"

Dealing with four renters instead of eight ought to be reason enough.
They seem to have more damn "rights" than the owner! :roll:

 

[Deleted member 4644]

What is NPV ?

Sort of answered my own question, although I don't fully understand its significance..

http://www.investopedia.com/terms/n/npv.asp

PS -- thanks for not flaming me.. you gotta start learning this stuff somewhere

 

[Deleted member 4644]

Oh.. and let's say the 4 units make $4000/mo total, for a total income of $48,000 a year before taxes and insurance. Let's say it makes about $39k net profit.

The property is probably worth $500k+ total, with more than half that (I assume) in land. As you can tell, the renters are somewhat undercharged presently.. because the units are extremely high sq ft and in excellent condition.

So how would I calculate the ROI and NPV for a new 8 unit construction? (I know I would need to know the cost... is 250k an ok ballpark?)

 

[Phoenix86]

Originally posted by: JS80

Originally posted by: Phoenix86
ROI?

+ NPV

FTW!

 

[Hyudra]

Originally posted by: LordSegan
Oh.. and let's say the 4 units make $4000/mo total, for a total income of $48,000 a year before taxes and insurance. Let's say it makes about $39k net profit.

The property is probably worth $500k+ total, with more than half that (I assume) in land. As you can tell, the renters are somewhat undercharged presently.. because the units are extremely high sq ft and in excellent condition.

So how would I calculate the ROI and NPV for a new 8 unit construction? (I know I would need to know the cost... is 250k an ok ballpark?)

NPV....

year 0 , cash to do construction
year 1, cash inflows yr 1 discounted back to year 0 at your required rate of return
year 2, cash inflows yr 2 discounted back to year 0 " "
ect,
year X, cash inflows yr x discounted back to year 0 " "

If it all comes out positive, then you should do it.

I think the most important thing is to just use the payback period method, since it pretty much does the same thing, but in a fraction of the time. IRR is unimportant.

 

[TitanDiddly]

Do you have fire insurance?

 

[Deleted member 4644]

Originally posted by: TitanDiddly
Do you have fire insurance?

LOL! You are a bad man.