Nobody asks if you should build. Only how.
I can still get hypnotized by a number.
Twenty-six years in, and a clean appraisal on a nice PDF still tugs at me for half a second. Big number. Bold font. A discount off the top, just for me. The number wants to be believed. And for one breath, I want to believe it too.
Then I ask the one boring question that ruins the magic trick.
Where did this number START?
Let me tell you about a six-unit build. Real one. Closed over a year ago.
We bought the dirt. Then we built the price from the ground up… the whole enchilada. Land, soft costs, the construction contract, all of it stacked in honest. All in, around $1.6 million. The appraisal came back near $1.85. That is a couple hundred thousand dollars of equity sitting there before a single tenant moved a single box in. And with the financing run properly, project management fee back to us, interest reserve paid in advance, GST rebate at the end, we were into a $1.6 million build for under $80,000 cash.
The appraisal validated the price… it did not establish the price.
Built up from the dirt. The whole enchilada, priced straight. The person who carried the risk earned the spread.
Now, straight talk, because I am allergic to hype even when it is my own. Those numbers are real, but they are not today’s numbers. We were early adopters on this, late 2022, one of the first through the door. The juice was sweet then. It is thinner now. Walk in today expecting a couple hundred grand of built-in equity and you will be let down. Your mileage will vary.
That is not a reason to look away. The good ones still pencil, they still cash flow, and I am chasing more of them myself right now. But here is what tighter margins actually mean… the team around you stops being a nice-to-have and becomes the whole ballgame. Less room for error. More reason to have people who have done this standing beside you.
I found that edge, ran it a few times, and mostly kept my mouth shut. Trying not to tell too many people. The logic got out anyway. It always does.
The number that came from an island
Somebody looks at a spread like that and thinks, why should the buyer get it? So the pricing flips. Upside down.
Bottom-up starts at the dirt and stacks up. Top-down starts at the appraisal and works backward. They order the appraisal first. And sometimes that number arrives from a place I can only describe as Fantasy Island. No road back to the actual ground. Then they price the deal right under the fantasy, hand you a “discount off appraisal,” and call it a deal.
I will say this plainly, because somebody has to. In 26 years I have never seen this much hype, hyperbole, and outright bullshit packed into glossy decks as I am seeing right now. Crappy product, dressed up gorgeous, oversold to people who are going to have a very sour taste in their mouth a few years from now.
You did not buy equity. You bought a postcard. A pretty picture of an island that may not be there when the tide comes in. And you are the one standing on it for the next ten years.
To be clear, the enemy here is not a Realtor or a developer. People do what they are paid to do. The enemy is a pricing logic that starts at the fantasy and asks you to go live in it.
The question nobody in the room gets paid to answer
Here is the reframe. The thing I want you to sit with.
Walk into almost any pre-construction or development pitch and notice the question everyone is racing to answer. How do I get you in. How much down, which lender, when do you sign. A whole room optimized for HOW.
Almost nobody in that room is paid to answer the other question. Should you build this at all?
The person selling you the deal usually gets paid at first draw and is gone. You hold it for seven, ten years. Their risk and your risk are not the same risk.
Run these tonight
Before you sign anything, run these. Tonight. On the deal already sitting in your inbox.
- Ask where the price started. Make them show you the build-up. Land, hard costs, soft costs, contract. If all they can show you is an appraisal and a discount off it, you are holding a postcard, not a pro forma.
- Find out when the seller gets paid. If they are cashed out at first draw, their risk ends right where yours begins.
- Find the spread, and ask who got it. If the margin is already baked into your purchase price, the spread already left the building. With you holding the door.
- Ask the boring question out loud. “Should I build this?” Before “how do I get in?” If nobody in the room is paid to answer that one… that is your answer.
You cannot solo this one
Here is the part that should stop you cold.
I have transacted hundreds of properties. Twenty-six years. Built four projects of my own, twenty-five units in total, every single one different, every one demanding knowledge the last one did not. And building these STILL stretched me. I leaned on a huge team. My network. Guidance from people who knew things I did not.
That is the disconnect I keep seeing. People walking into a twelve-unit build with the same playbook they used to buy a townhouse off an MLS sheet. Same simple approach, completely different animal. It does not transfer.
You will need a team around you. You will need guidance. You will need support. That is not a weakness in you. That is the job.
Coach, heal thyself
I have consulted on more than 42 of these now. Six units to ninety-four. I am not telling you that to flex. I am telling you so you know the questions above are not theory. They are scar tissue.
And yes, I am the guy who found the edge and then sat on it too long. Coach, heal thyself.
Here is what I wish more people had before they signed: one honest conversation with someone who has actually built the thing, has the team behind him, and has zero commission riding on your yes.
That is the work I do. If there is a deal in front of you right now and the number feels a little too much like a postcard, have the conversation before you sign, not after. Book a call at russellwestcott.com/free-consultation/. Bring the deck. We will find where the number started, together.
You are sharper than the brochure. Trust that.
In your corner,
Russell Westcott
#Inspire # Encourage #Love
P.S. Everything above is ONE way to do these… build it up from the dirt yourself. It is not the only way. There are two more strategies on the table, and the one I am running right now might be my favourite of the three. I call it the hybrid. You partner with the builder and the developer, lean on their financing, their credit facilities, their cash position, and work hand in glove with the people who actually pour the concrete. Less weight on your back. Real skin still in the game. So far, it is working beautifully. That is the next article. Bring your coffee.
