---
id: "action-buy-below-replacement"
type: "action-item"
source_timestamps: ["00:35:00", "00:38:00"]
tags: ["acquisitions", "valuation"]
related: ["concept-replacement-cost-margin", "framework-deal-evaluation-triad"]
speakers: ["Ken McElroy"]
action: "Only acquire properties priced significantly below the current cost of new construction."
outcome: "A strong margin of safety and protection against new market supply."
sources: ["mcelroy"]
sourceVaultSlug: "mcelroy-multifamily-distress-playbook-2026Jun25"
originDay: 9
---
# Target Assets Below Replacement Cost

## Action

**Only acquire properties priced significantly below the current cost of new construction.**

When evaluating acquisitions, calculate the cost to build a comparable new property in that specific market today. Only pursue deals where the purchase price is materially below this replacement cost. This is the first test in [[framework-deal-evaluation-triad]] and the operational expression of [[concept-replacement-cost-margin]].

## Expected Outcome

- Built-in **margin of safety** against further price declines.
- **Supply-side moat**: developers cannot build profitably at current market rents + construction costs, so new competition is limited.
- More forgiveness if interest rates stay higher for longer.

## Implementation Notes

- Benchmark against current per-door construction cost in the specific submarket (materials, labor, soft costs, land).
- McElroy's reference example: **Class A Scottsdale acquisitions at ~$260K–$300K per door**, well below current new-construction costs.
- Be aware: in severe downturns, assets can trade well below replacement cost — it is not a price floor.
- Local fundamentals (jobs, population, regulatory risks) can still make a *below-replacement-cost* asset a poor investment in a structurally declining submarket.