According to the 2010 census conducted in the United States, over one-third of all households are residing in apartments. The number of people living in multi-family apartments is growing steadily, and investors preferred developing this type of residential buildings.
However, the cost of constructing multi-family apartments seems to be enormous and also increasing. Developers are beginning to lose confidence in the market, and this has been linked to the cost of construction.
Reasons for the increase in the cost of constructing multifamily apartments
About 32% of the overall costs of multi-family property construction is due to regulatory compliance. Other aspects that contribute to the surge of the expenses include the cost of construction materials (increased by 7.4%), increase inlabor costs, and price hikes of imported items.
Why you should be aware of multifamily construction costs
It is essential to understand multi-family property construction costs if you want to passively invest in it or if you want to actively get involved in some massive real estate development. As Avalon Management explains, this will prevent you from spending more than you should on any aspect of the project.
It is essential to also know that the costs may vary significantly, depending on the area. For this reason, you should know the national and local cost averages for all the categories involved.
Cost categories of multifamily construction
Three broad categories require spending and these are:
- Land cost
The cost of land will vary depending on the location. Land costs in urban areas will be more expensive than those in rural territories. This is the first significant spending that you will make in multi-family property construction.
It is estimated to account for about 10% to 20% of the entire budget depending on the location. This can also include demolition costs, if necessary.
2. Hard cost
This comprises the cost of materials, labor, engineering, contractors, and subcontractors. It constitutes a substantial part of the funding as it accounts for 50% to 70% of the budget.
- Soft cost
This is made up of supplemental fees such as legal fees, permit fees, construction loan interest and fees, interior design expenses, and other similar expenditures. This is the last part of the budget, and it accounts for 20% to 30% of the total cost.
Among the soft cost, the architect's fee is the most significant while the contractor's charges are the most expensive part of the hard cost. This is because of the role they play.
Role of the architect
The architect will perform the following roles:
- Formulate the scope of the project and the initial budget
- Prepare a work list and plan the outline
- Create schematic designs of the building plans
- Complete the construction paperwork and decide the materials that will be required
- Supervise the hiring process and help the developers to review bids and select a contractor
- Review architectural plans with the appropriate agencies and obtain all the permits that will be needed
- Work together with structural engineers and planning agencies
- Serve as the project manager and ensure that the project is smooth.
Role of the contractor
The contractor will do the following:
- Sourcing and purchasing all the necessary materials for the project
- Acquiring the utility and construction permits
- Perform the contracting work
- Select, hire, and supervise the subcontractors
- Work together with the developers and architect to reduce cost while maintaining quality and also deliver the project on schedule
- Perform the final clean-up of the site after the construction is finalized.
How much does a multifamily construction cost?
The cost of multi-family property construction varies based on location and size. However, there are some reasonable ranges and averages that you should note.
Recent estimates show that the total construction costs vary between $64,500 to $86,000 per unit. A break down of this estimate indicates that:
- Contractor’s fee is between $85 to $200 per square foot. An average contractor will charge $125
- Commercial architectural firm charge between $125 and $250
- Mason, excavator, and carpenter's fees are $70 per hour
- Painters charge the rate of $20 to $35 per hour
- Plumber rate at $45 to $65 per hour
- Electrician's fee at $65 to $85 per hour
In a nutshell: Multi-family Property Construction Costs
Over one-third of all households in the United States are residing in apartments, and this is growing steadily. This made investors prefer developing multi-family apartments.
However, construction costs are enormous and also increasing. Investors are beginning to lose confidence in the overall market because of the expenses. The rise in cost is mostly due to the increase in the price of compliance, construction materials, labor, and imported items.
If you want to get actively or passively involved in multi-family property construction, then you should be conversant with the cost. This will prevent you from overspending on the project.
The cost of constructing a multi-family apartment may vary based on location and size.The range is between $64,500 to $86,000 per unit. Always seek the services of professionals when you are considering this capital intensive project.