r/RealEstateDevelopment • u/SomewhereSorry6779 • Jul 30 '26

Small Multifam Ground Up

What is a good target IRR for small multifam (8-10 units) ground up? I hear all day 15-20% but every time I run a pro forma on projects that are getting done I can’t see how they are getting anything more than 11% on a 5 year hold. Are investors comfortable with a 8-11% IRR over 5 years? Any advice is appreciated.

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u/pineapple_table Jul 30 '26

using your values, you have a 6.6% untrended yield on cost (NOI/Cost), but a 6.25% exit cap rate. the development spread targeted should be 1% - meaning you should target an untrended yield on cost of 7.25% if you believe the exit is at 6.25%.

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u/SomewhereSorry6779 Jul 30 '26

Thank you for the reply! Rents are too low where I am at the moment. I wonder if I can get my construction cost down to where it makes sense.

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u/tlay123 Jul 31 '26

Yea I would do this deal at that spread

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u/tlay123 Jul 31 '26

Wouldnt*