On average, building an apartment complex in the US costs about $398 per square foot. However, the exact price per square foot will vary depending on the location and finishings. As a result, affordable housing can be cheaper, while building a luxury apartment complex can cost much more per square foot.
Here is a detailed look at the cost of building an apartment complex.
- Financing Costs
- Hard Costs
- Soft Costs
- Long-Term Costs
1. Financing Costs
Chances are that if you're planning on building an apartment complex, you won't pay cash out of pocket, so you'll need to raise funds to buy the land and finance the construction. Therefore, you'll need to account for the various financing costs, such as loan origination fees, interest, and any other fees paid to the lender.
2. Hard Costs
Next, you'll want to consider the hard costs or expenses related to the physical construction, such as purchasing the land, hiring workers, purchasing materials, equipment, utilities, site work, etc.
3. Soft Costs
Soft costs are expenses not associated with the physical construction but are still necessary to complete the project. Examples included paying for business licenses, permits, taxes, spec drawings, inspections, engineering, and other intangible services needed throughout the process.
4. Long-Term Costs
Long-term costs are any recurring fees or costs required to maintain the building's essential systems. Examples include utilities and the cost of maintaining amenities such as an elevator, security system, swimming pool, laundry, etc. These costs will be more substantial in luxury buildings than in more barebones units, but long-term costs will likely be associated with any building construction.
- Affordable vs. Luxury Building
- Size of the Building
The location is one of the biggest factors that will impact the overall cost of building an apartment complex. Is the building on 5th Avenue in New York or downtown Boise, Idaho? The location will not only impact the cost of the land but also may change how much it costs to buy materials, hire labor and pay taxes.
However, it will also determine how much rent you can eventually charge once the project is completed. Typically, the more expensive the land, the hotter the market will be, although that's not always the case. So, you'll need to crunch the numbers to ensure any added costs will result in more rental income.
Another critical factor in the cost of building an apartment complex is labor. Labor includes the contractors and subcontractors you hire to do the work and any other professionals such as architects, engineers, project managers, real estate attorneys, etc. The people you hire to complete the job are crucial to bringing your vision to life but can also help keep costs under control.
An experienced and professional GC will help ensure the project stays on schedule and on budget to reduce any expensive delays or hidden fees. Plus, any professional that does quality work will make the project more affordable than any amateurs who may need to be replaced or have their work corrected. So many sure you hire experienced professionals; even if the price is higher than going with more inexperienced talent, it will often be less costly in the long run if you assemble a great team.
The materials you use are also a major determinant in the overall cost of building an apartment complex. Basic features and fixtures will cost far less than luxury units with all the bells and whistles, especially if it's a larger building with more than 50 units. The cost of materials can vary significantly depending on several factors, including the types of material needed (lumber, steel, glass, etc.), the market conditions, shipping costs, and the amount of product needed. This is where having a reliable general contractor can be a major blessing because they will help you estimate these costs and keep everything within your budget.
4. Affordable vs. Luxury Building
Assessing whether you plan to construct affordable housing or a luxury building is critical. Luxury buildings will be expensive, especially if they feature unique amenities and upgrades. However, if built in a strategic market, they can also attract wealthier tenants willing to pay higher rents. Many cities have zoning policies requiring developers to build a certain amount of affordable housing when they make luxury apartments or offer tax incentives.
Affordable housing units are cheaper to build than luxury units but will command different rental incomes. However, in expensive areas, cheaper apartments may attract a more consistent stream of renters, so the lower rate of vacancy may offset the lower rents. Affordable housing complexes will usually be on the lower end of the spectrum in terms of cost ($70,000 - $100,000), while luxury buildings will be at the higher end ($170,000 to $200,000).
5. Size of the Building
The size is another significant factor that will impact the cost of building an apartment complex. A small, four-bedroom building will likely only cost a few hundred thousand dollars, whereas a large multi-family building with 50+ units can cost several million. The exact cost per unit can vary depending on the location of the building.
For instance, in New York, it costs around $120,000 per unit, even for more affordable buildings, meaning it would cost about $480,000 to build a four-unit building and as much as $120,000,000 for a building with 100 units. But in Miami, the cost per unit is closer to $73,000, which would be about $292,000 for a 4-bedroom unit and $73,000,000 for 100 units. So, before you decide on where to build, consider the size of the building and how much it will cost per square foot.
Time is another significant factor that impacts the overall cost of the construction. The longer it takes to complete the project, the more carrying costs you'll have and the more it will cost to hire labor. So, it's essential to create a detailed construction schedule and stick to it as closely as possible. The exact time it takes to complete the construction of an apartment complex will vary depending on the job's complexity and the market's broader conditions. But even the smallest projects typically take about 12 to 18 months from start to finish.
Stages of Construction Include:
Planning (Pre-Construction): The planning stage starts with the project's inception when you eventually break ground. During this stage, you will develop your idea, work with an architect, determine the project's scope and requirements, and obtain financing. This is often the longest stage. However, ironing out all the essential details before you begin work is crucial.
Construction: Next is the construction phase, which is often the most exciting yet nerve-racking period. This includes everything from breaking ground to putting the finishing touches on the building. During this phase, you will be at the mercy of the contractors and subcontractors responsible for pouring the foundation, building walls, painting, and doing all the plumbing, carpentry, and electrical work needed to finish off the building.
Post-Construction: Once the construction is complete, you'll complete any odds and ends and miscellaneous tasks necessary to get the building ready for sale or lease, such as paying contractors and service providers, cleaning up the site, and inspecting the building.
Building an apartment complex can be very capital-intensive, even for the simplest construction projects. So before diving into anything, it's crucial to carefully crunch numbers and analyze all the necessary factors to make sure you will turn a profit.