There are two ways to understand the overall cost to build apartments. You can determine the budget for building an apartment either by measuring the price per “apartment unit” or simply by making a rough estimate of the entire building complex.
Average Apartment Building Cost
Essentially, a single building complex may contain one or more apartment units. According to the U.S. Energy Information Administration, the standard size of an apartment unit is 861 square feet with a footprint of 24 feet by 35 feet.
So, how much does it cost to build an apartment? The national average cost per square foot of apartment construction stands at between $85 and $400, but most contractors charge around $230.
For constructing a 12-unit apartment with normal foundations and a full basement, complete with all appliances, doors, and windows, all ready for use, using materials of mid-range quality, the cost would be around $71,400 to $336,000 per unit. If using the actual average rate, the cost would be around $193,200 per unit.
Considering the cost of an entire building complex, the figures could range from $856,800 to $4,032,000, with $2,318,400 being the average figure. This does not include land acquisition costs.
Of course, this can significantly increase when using high-end quality materials and finishing, and depending on the location, construction costs could still skyrocket in some of the most progressive cities. It could be as high as $330 to $580 or more per square foot in San Francisco, CA or in New York, where the starting price is a hefty $350 per square foot and can go up to $850 or more.
Apparently, not everything was incorporated in the cost discussed above. By now, we should have realized that apartment construction costs are different from the total cost of completing an apartment building.
In order to come up with the latter estimates, you would have to deal with the following:
- Land – land costs are highly variable in different parts of the US, so always consider this when planning to construct an apartment. This is because of the fact that the cost of construction will most likely be directly proportional to the price of the land being purchased, as it doesn’t add up if land costs are expensive but everything else is cheap.
- Parking – this will be a very important addition to the property as every eventual occupant of the apartment will be bringing in vehicles with them. The cost of a surface lot can be anywhere from $3 to $7 per square foot, while parking structures can cost around $65 per square foot.
- Removal of existing structure – the price quote only consists of anything related to building the apartment from scratch. So if something needs to be demolished and removed from the site premises prior to the commencement of the project, that would possibly entail a separate contractor or separate contract, and understandably, a separate cost . This typically costs around $1,200 to $4,000 or more, depending on the complexity of the existing structure to be eliminated.
- Insurance coverage – You may also need to cover the cost of insurance for unexpected circumstances like fire, theft, etc., once the apartment has been erected. To give you an idea, the cost of homeowner’s insurance ranges from $600 to $2,000, which often depends on the property’s location and the chosen coverage. If you are considering the landlord’s insurance, expect to pay around 20% more than the homeowner’s insurance premium.
Factors Affecting Cost of Constructing an Apartment
- Size of the building – since most cost components in construction are based on square footage, the bigger the building, the higher the cost will be. However, the multifamily construction cost per square foot tends to decrease gradually as a few cost components tend to be constant or not relatively directly proportional to the size of the project. A few examples would be the mobilization of the equipment, design costs, administrative costs, etc.
- Number and size of units – beside the overall size of the structure, the number of units definitely impacts the total cost more because of the addition of dividing walls, doors, windows, and other components that make up each unit stand separately from the rest of the other units in the building.
- Materials – you have the option to use cheap, mid-range, or high-end materials to dictate or control the total construction cost. However, this will impact the living quality, maintenance cost, and resale value of the property if you are considering apartment buildings for sale.
- Location – the location-based prices stated above are proof that the cost of living greatly affects the construction cost in general.
- Choice of contractor – the skills and experience of the contractor you will be tapping the services of will not only affect the quality of the project but will also be a major factor in the overall cost. However, it is never a guarantee that expensive will always translate to good workmanship, as there are also great contractors that don’t charge much. Thorough research is still the key.
Advantages of Apartments
As far as the return on investment is concerned, the best way to understand it is to compare its advantages to investing in single housing units. Here are the following benefits of investing in an apartment building complex:
- Safer cash flow
With single houses, there is only either 100% or 0% occupancy. One vacancy in, let’s say, five houses can already deeply hurt your cash flow.
Moreover, an apartment rental has a wider range of buyers or tenants since single young adult occupants and senior citizens can better afford a unit than an entire house and lot. One of the strongest guarantees for a larger pool of buyers is that in apartment buildings, homebuyers can avail themselves of more government-funded programs.
- Easier to manage
Simply put, it is harder to keep an eye on several buildings than one. A lot of things can come into play when consolidating all real estate property into one building.
A case in point: an entire apartment building has fewer assessments and sets of regulations. In fact, it costs more to build 5 houses than to build more than 5 apartment units in a single building.
In line with this, every single house is more challenging to maintain because there are fewer uniform regulations. Case in point: homes with pets and children require more oversight and potential maintenance expenses.
- Self-investment edge
When it all comes down to it, you, as an investor, can even live in one of these units in the building. Hence, you have more incentive to spruce up your entire building premises.
The Federal National Mortgage Association (FNMA) imposes a limit on lending when investing in single–family housing units. When financing apartment buildings, you have a better chance of being less burdened.
Tips To Smart Financing
Considering that the price of building apartments is relatively exorbitant, you can still come up with clever ways to reduce the overall expenses. Curiously, the two aspects of the entire building project that can be conveniently configured are the materials and the building layout.
By tapping into these two components, you can significantly reduce not only the building costs but also its maintenance for the long-run operation.
- Reducing corridors
As per a few architectural experts online, it is possible to maximize the building’s effectiveness by eliminating corridors. A steep vertical building with fewer corridors can have an overall efficiency of as much as 90%.
Long corridors needed to be lit, swept clean, and air-conditioned. Reducing corridors would mean reducing inefficient use of electricity as well as less demand for custodian services.
In terms of ventilation and navigation, minimized corridors can save you 25% to 30% of the overall circulation area. It roughly translates to a $3 million savings for a $60 million overall budget.
- Going green with the materials
Back in the day, the idea of using eco-friendly building materials only meant fractionally reducing energy bills. After all, some materials can practically minimize the need to use too much electricity to power an HVAC system due to better insulation and solar energy obstruction.
But nowadays, the idea of going green means getting an Energy Star rating for buildings comprised of eco-friendly materials. In other words, both government and private authorities are keen on granting tax rebates to homeowners whose properties are accredited with an Energy Star or LEED rating.
The same can be said about real estate investors, too. In fact, in 2015, a lending company called Fannie Mae dropped 4% to 3.9% for any investor whose apartment building qualifies with Energy Star or LEED certification. This means over $95,000 in savings for a $10 million loan owed for 30 years.