Conservative Replacement Cost Rules (Simple Numbers)
These are safe averages across most U.S. markets.
Multifamily Apartments
$220,000 per unit
Why
New construction today often ranges $220K–$350K per unit depending on city.
Using $220K keeps the estimate conservative.
Hotels
$180,000 per key
Why
Limited-service hotels typically cost $170K–$250K per key to build.
Using $180K avoids overstating value.
Mobile Home Parks
$50,000 per pad
Why
Pads require:
• land
• utilities
• roads
• sewer connections
Development costs usually range $45K–$80K per pad.
RV Parks
$40,000 per site
Why
RV parks require:
• grading
• electrical hookups
• water/sewer
Typical development cost:
$35K–$70K per site.
Why These Conservative Numbers Matter
Using conservative numbers protects you from:
• overpaying
• optimistic projections
• bad deals
If a deal still works with conservative assumptions, it is much safer.
The Key Rule Investors Use
If the purchase price is:
20–30% below replacement cost
The deal has strong downside protection.
Use Case 1 — Multifamily Example
Property:
120 units
Conservative replacement cost:
$220,000 per unit
Step 1 — Calculate Replacement Cost
220,000 × 120
= 26,400,000
Replacement cost ≈ $26.4M
Step 2 — Seller Asking Price
Seller asks:
$18,000,000
Step 3 — Calculate Discount
18,000,000 ÷ 26,400,000
= 0.68
68%
Step 4 — Discount Below Replacement Cost
100 − 68
= 32% below replacement cost
That’s a strong acquisition opportunity.
Use Case 2 — Hotel Example
Hotel size:
150 keys
Replacement cost per key:
$180,000
Step 1 — Replacement Cost
180,000 × 150
= 27,000,000
Replacement cost = $27M
Step 2 — Purchase Price
Seller asks:
$19,000,000
Step 3 — Discount
19,000,000 ÷ 27,000,000
= 0.70
Step 4 — Discount Below Replacement Cost
100 − 70
= 30% below replacement cost
That is exactly in the institutional buy zone.
Use Case 3 — Mobile Home Park Example
Park size:
200 pads
Replacement cost per pad:
$50,000
Step 1 — Replacement Cost
50,000 × 200
= 10,000,000
Replacement cost = $10M
Step 2 — Purchase Price
Seller asks:
$7,000,000
Step 3 — Discount
7,000,000 ÷ 10,000,000
= 0.70
Step 4 — Discount Below Replacement Cost
100 − 70
= 30% below replacement cost
Another strong value deal.
Why Investors Love Buying Below Replacement Cost
Three big reasons.
1️⃣ Development Competition Disappears
If it costs $26M to build and you buy for $18M, developers cannot compete with you.
Your asset becomes the cheapest supply in the market.
2️⃣ Built-In Equity
Example:
Replacement cost = $26.4M
Purchase price = $18M
Equity created instantly:
26.4M − 18M
= $8.4M
3️⃣ Downside Protection
Even if the market drops, construction cost acts like a floor for value.
The Ideal Deal (Grant + Marco + Your Model)
The strongest acquisitions combine three things:
1️⃣ 20–30% below replacement cost
2️⃣ DSCR above 2.0
3️⃣ Yield above 25%
That means:
• protected downside
• strong cash flow
• strong financing support
Quick Cheat Sheet
Use these conservative numbers when evaluating deals quickly.
Multifamily
≈ $220K per unit
Hotels
≈ $180K per key
Mobile Home Parks
≈ $50K per pad
RV Parks
≈ $40K per site
The Key Insight
Replacement cost tells you:
“What would it cost to build this today?”
If you can buy far below that number, you gain:
• instant equity
• competitive advantage
• protection from new supply