First, I should point out that I am in no way venturing into the world of commercial real estate development.......at least not yet. But my area is expanding and one area in particular is seeing a lot of growth from large lot single family to commercial/ high density residential. As a result a lot of property is going up for sale in the area and I started to wonder how much it costs to build a basic apartment building. How does one estimate such a cost? Is there a rough price per square foot cost one can use or is one of those each case is different situations.
Of course every project would be unique, but I think it's a fun mental exercise to run the numbers on big deals like this to see what the possibilities are. Who knows, maybe one day it will come in handy.
I should also point out that the area would only support basic apartment complexes, nothing too high end. I'd say 1000 sq ft max blue collar / young professional type units.
the sad part is that you may not be able to build at all, and if you had the cash to build, you might not have a great investment.
How about this scenario:
You build with your own money and have to rent the units for $1200/month for a decent return.
The dudes down the street get government grants to pay for 1/3 of their building cost and then the government subsidizes the rent for the renters. Renters pay $550/month and the government pays $650 to the owner group.
Tough to compete when you charge $1200 and the apt down the street charges $550.
It is a bad deal when the market is skewed by federal govt. involvement. I have seen the above scenario in our town, along with similar deals on groups of single family homes.