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Buy or build?


I’m in Detroit right now.

I’m staying in a nice neighborhood where you can buy a 2,000 sf house on a 6,000 sf lot for about US$125,000. A house double the size, at around 4,000 sf, might run you US$350,000.

In comparison, a new underground parking spot in downtown Toronto could cost you around CDN$60,000. And a small 1 bedroom apartment, could easily run you the same price as the above 4,000 sf home.

These are two completely different real estate markets.

What’s happening in Detroit is that many/most of the houses are being valued at below their replacement cost, which means it generally doesn’t make sense to build new. Why take on the risk of building when you can buy for less?

Oftentimes this a decision that real estate companies will face: buy or build? Depending on the market, the answer could be very different.

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