Cost to build a 6 floor 12 units apartment building

29 Replies

Hi Everyone:

I am new to this forum. This is literally the first discussion I posted here. We are currently under an agreement of a 4-plex of 1million. We are debating whether it is a good idea to buy this property or find a better opportunity.

We can build 6 floor 12 units (2bed, 1 bath, 800-1000sqft per unit) on this lot. What would be the approximate cost to build such an apartment building.

Also, if we decide to go this path, how to estimate the market value of apartment building? I never bought any apartment building before. Is the estimation of apartment building similar to residential house? Residential property usually uses comparison of similar house recently sold in that area. But apartment building is quite difficult to find such comparables. If it costs 3 millions to build and the value of this building is only 4million, then it doesn't make sense to me.

Can anyone give me some opinion or suggestions?

Many thanks!

First off, welcome to BP, it's a great place to get advice and learn about real estate. It's impossible for anyone to give you an answer to your question as to the cost. The cost is determined by the cost of everything that goes into the deal, from design, permit costs, fees, engineering, etc. Once you have a design, then you are in a position to begin estimating and getting an idea as to the costs that will be involved.  For right now, you're way out ahead of yourself. 

Also, you mentioned you were under an agreement for a 4 plex, so then you're tearing down the 4 plex and building a new 12 unit structure? The cost of tearing it down needs to be factored into costs too, and varies by area, depending on how far it has to be hauled off, etc.

Without any experience in new construction, I would suggest you find a general contractor or developer that is local, and has the experience in building such projects. Good luck. 

I concur with Karen.

The value of a 12 unit apartment building is not like that of a residential house.  Its value is largely determined by the income it produces, not comparables, per se.

Constructing six stories is well out of the realm of residential (wood frame) construction.

Good luck!

I agree with both posters above, you will need an experience with new dev on SFR before you jump to 6 stories, even choosing a builder at an investor price is difficult.

6 floors and a 2000 square foot- footprint?

Elevator, egress stairs, fire resistive construction and probably sprinklers, structural concrete, parking.  It will be expensive.  Your per foot construction costs will be much higher because of all the additional stuff you have to do to go up that high. If you could go bigger, 4-5000sf, then you get some economy of scale (i.e. the cost of the elevator will be spread out over 24 units instead of 12).

Construction costs could be more than $200/ft., so for your 12k sf building you're looking at $2.4M plus the $1M, gets you to $3.4M or $283/sf. all in or more.

Value is all based on current and future cash flow. CAP rates evaluate current cash flow, NPV looks at future cash flow.

No one will be able to tell you whether or not this is a good deal based on the scant information provided (that's not a dig at you, there's just tons to consider in a deal like this). My only advice is to learn enough on your own to know whether or not it's a good deal, when you don't have to ask you'll be ready to jump in.

Good Luck!

@Rachel Li

I would recommend you do your due diligence and hire an architect to do a zoning study and schematic design, that way a contractor can provide a cost estimate based on your schematic drawings.  As previous posts mentioned, 6 stories is past your typically wood frame, apartment buildings have specific fire code requirements that are more stringent, and there also may be local zoning codes that you need to consider as well.  While all this costs money, I would encourage you do your due diligence before spending a million to purchase it if you can.

thank you so much for all your replies! Do you know the cost and time to hire an architect to do a zoning study and schematic design? We only have a few days for the feasibility contingency. We drove by the same area and found that there is an 6-story apartment building with the same zoning code but on a slightly smaller lot. I will probably call the design company and ask the cost of that project , not sure if they are willing to release that information to me.  

My question is this:

If the building that I mentioned above is feasible and my targeted house has the same zoning code, does it imply that I can also build a similar building on my lot? Do I miss anything here?

 Many thanks!

if you only have a few days, that's not enough time for schematic design.  You can probably do the zoning due diligence yourself, zoning usually are posted on the city's website and they have a full zoning code, but it may be faster and more accurate to speak with an architect who is familiar with the zoning.  But essentially yes, if your lot is zoned the same, unless they had a variance or exception of some sort, you're most likely able to build the same unless zoning codes recently changed and theirs is based on a previous code.

Pricing varies for design firms.  Usually a larger firm charges more than a smaller 1-5 person firm purely based on overhead costs. I would recommend calling the design firm and see if they can give you a fee proposal for drawings but they may verbally be able to confirm your zoning if they're familiar with the city and zoning code.

I can't comment on the costs in your area, but i'd estimate at the very least 1 week for an architect to prepare minimal drawings for you, and that is if you can supply a survey or similar information asap.

Permits, Zoning, Etc. Don't put the cart before the horse. Unfortunately this is going to vary GREATLY by area. I have buddies who wait 6 months to a year to get all of the red tape cut before a shovel hits the dirt. 

I think a good distinction to be made in this thread is the difference between technically feasible vs profitable. It appears that if a neighbor has built something like you are looking at then it zoning, building codes, and seismic codes would allow you to build a similar building. 

However, just because it was built does not mean that there was money made. I would think that in my Salt Lake Market it do a basic building of that configuration you would be looking at the mid to high $200's a square foot for hard costs. I am sure that costs are higher in Bellevue. Additionally I would guess that the type of apartments that would be in that configuration would have higher than average finishes, and that is a serious balancing act to not under or over spend. In addition to the hard costs, there will be soft cost. Those are generally an additional 30-40%.

This sort of deal is not a beginner deal. Someone with experience might be able to make some money, but without a lot more information it is impossible to tell.

I would have to know each clients risk exposure before taking on such a project.

If someone is worth 20 million for instance and wants to (build something) to see if it is a success then at the the end of it makes money or loses a little money at that deal size ( 3 million) it is not the end of the world for them.

A group of people putting funds together with a majority of their worth to build a deal with tight margins and little to no experience where a larger loss can be seen the damage can be quite significant.

How you look at development is run very conservative numbers for expected income and higher expenses to make the project go. This way anything above that is extra but not expected to make a project work. When you get into trouble is inflating or being overly optimistic about the expected cash flow streams of a new project and then underestimating the costs.

All in costs go up and expected income goes down. Now on paper you have a loser instead of a winner. Used to you could get 90% non-recourse financing for development back in the day. Now they want everything  in loan guarantees and heavy compliance from the county and cities.

Ground up development is the riskiest venture you can have out of all of them. So many unknowns can happen during the process.

First you need to figure out your time horizon when you want to sell. Is it 1 year after completion, 3, 5??

Now take your conservative market rents your research shows once built out and work your way backwards with the numbers. Eventually you will get at a cost for the max amount you can pay for the land.

Right now it sounds like you need a real estate developer to partner with. You learn as the project goes along. Chances of success are higher with experience and you spread the risk out among multiple groups of people.  

Bellevue is also a large area!  Are you out by Bellevue College?  Down in Factoria?  Up closer to 405? @Rachel Li ?  Building in Bellevue Proper is going to be much more expensive than building out on NE 8th and 156th.

@Rachel Li  What you are wanting to do is very high risk. Without any knowledge of construction and development, there are so many things that you can miss when you are just eye balling a property, that can cost huge sums in the end. Zoning is a TINY piece of the equation. There are many things that go into a project that must be factored in, including the cost of money, experience of the contractor/project manager, specific design and materials used when comparing one project to another, lot coverage, availability of utilities, etc. The list goes on! 

Real estate development can't be learned in a day or two, and jumping into buying a property when you don't know anything about what you are doing or have someone that does, is extremely risky.  I'd advise that you get a team of qualified people together ahead of time, and THEN start looking for property to build on. Check licenses, past work, call references, etc. 

12 unit apartment building needs a AE firm.12 unit apartment building is commercial building, not residential.Especially when you are wanting to go vertical construction.You need architect, mechanical PE, structural PE, electrical PE, civil PE, and geotech.

Budget $20k minimum for an AE firm.You need to first verify site condition.Are there wetlands, protected areas?Add 6 months plus and more funding to do an EIS.

Someone mentioned a 4000 sq ft footprint.Get the architect to do a real quick basic design.The architect can then do an estimate on live and dead load.Then do a boring on site with the geotech to make sure the soil condition can support the building.If you are lucky, no special site prep is required.If soil condition isn’t ideal, then prepare to spend money on driving piles or other types of site prep to support the building.

Once you have these basic information, then you know you have a technically feasible 12 apartment building.A couple days of feasibility study won’t cut it.

The geotech information will be given to civil engineer and structural engineer.They will design the proper foundation.Structural engineer will design the load bearing structures.I personally like steel beam construction and concrete but they are more expensive.Civil and structural will work to design to seismic codes.

Mechanical engineer will do the plumbing and HVAC.Buildings need to breathe or they’ll rot from within.Electrical engineer will design the power distribution with appropriate protection circuits.Mechanical engineer will need to spend time to research and work on sewer connection to city or county sewer lines.If design requires digging up a public road for a tie in, it’s on your dime.There is a basic connection charge to tie in your sewer line.

Check with city of Bellevue on which IBC they are using.

"If the building that I mentioned above is feasible and my targeted house has the same zoning code, does it imply that I can also build a similar building on my lot? Do I miss anything here?"

No

This post is old and the OP probably moved on, but for the record, you may have the same zoning code than a building few blocks away, but the property may be subject to additional zonings, city ordinances, and agencies constraints that differ from the other one, and the code changes over time.

You do not need schematic designs but a title analysis for potential easements, code and zoning analysis and a detailled financial feasibility study.

Let me give you a couple of simple examples(based on my own experience) illustrating why this assumption is dangerous.

In Los Angeles like in many other cities, you have houses and buildings built as early as 1910s -1920s

Let's say you plan to demo a crumbling apartment building and plan to build a new one; let's pretend the zoning allows it, the setbacks are good, the floor area ratio is ok, you do not have insanely expensive lead paint or asbestos abatement and disposal to do; everything looks good and you go ahead with the demolition.

But you omitted one detail.

The city says that you now need 1 parking spot per bedroom, which means you now need to either cut the new building area in half to allow an outdoor parking or build a super expensive underground parking under the new construction. Indeed when the original building was built, there was no such requirement. Bummer. You now end up with a building half the size of the old one


Now another example of annoying administrative interference with dramatic consequences;

Let’s say you entirely demo your old building and have your old electrical service consequently shut down and removed. You submit your new plans to the plan check and they ask you to get a clearance from the utility company(regular due diligence). The utility company then tells you that you have to scale down your building because it comes too close from their power lines and that they also need to have a wide access path to their equipements as they have a precriptive easement not mentionned on the title.

You building is shrinking again.

Then you ask them for a new overhead commercial service to connect the apartments, but guess what, while the old building was connected overhead (cheap) they will now only allow underground commercial services as the code changed and it will cost you $400k to install a vault in the street and connect to their underground grid. And obviously, since there is only one utility co, you do not have the choice

I could go on like that forever and tell you about how the fire department, the MTA etc.. can seriously compromise your project with their restrictions, but you get the point

New construction is a serious business and you should only go ahead with such project after consultants have completed all due diligences

All these restrictions against new developments added to overpriced permits and mandatory overstretched technical studies(in los angeles at least) are insanely stupid because they aggravate the housing shortage, do not allow densification because of constrained floor area ratios, and encite owners to keep their 50s 60s 70s ugly asbestos filled crumbling apartment buildings rather than building new energy efficient ones

I do not know what the comps in your area or the area of this building would be but if you will be spending more than $65,000.00 per unit you will be spending too much. However, your thinking of a $3M price tag is a bit high. It should not cost you more than $1M to remodel and add units to the building, but even then I doubt that the needed rents could be attained as they would need to average out at about $3,300.00 per unit per month.

This might not even make sense right in the middel of SanFrancisco, but then again.......................................................

This is nothing I would be interested in taking on since there are so many other ready made cash flowing multi units out there to find for that price point. I might consider it if this property was in the middle of a place like Singapore for example. However if you are talking the state of Washington, I would move on to consider the next or another deal. If this property is not cash flowing in an as is condition then it is not worth the time, expense, nor the headache

In of all places Detorit you could find a ready cash flowing 12 unit building you can purchase for less than $420,000.00 and even at a rent of $700.00 per unit attain  2% of you monetary outlay per month. With $1M you could realize a 4% per month rental income. I know we are not talking similar markets here nor one you might want to own it being so far away but to me I simply look at the numbers and if a deal makes economic senseor not.

I consider the deal you presented as one that is way out there, out on the limb I mean where every single thing has to work out just absolutely perfect which almost never happens.

The deal you presented in not and I do repeat is not for those that do not have plenty of experience doing these type of projects already. I do have such experience and I am telling you that I would not do it, but to each his and her own. Hope you could prove me wrong for your sake. 

Hi there, before you do anything get a survey. There are multiple factors now that would prevent you from building even a patio in Bellevue. For example if your lot is slopped, it is a mission impossible to do any additions or rebuilding larger square footage plots not to mention right of way improvements that add huge burdens. I have had multiple requests for additions especially in Bellevue that didn't get approved due to additional costs and stipulations that make it cheaper to buy an existing property. Always ask the city/county and Utility companies what improvements they require as multifamily construction always has its lovely additional $$$$$ costs. Regards

I'm sorry but you sound very very new at this. I would tell you to run from this project or partner with a developer. Start with smaller projects. I wouldn't recommend even most flippers to do a ground up 12,000 sf building. They are very very different. 

  • Just because there is a similar building on the block, does not mean you can build the same thing. You might need a variance and/or other entitlements that take time and money. 
  • Time. All depends on your town/county/city. Ground up developments can take 12-18 months just to get all the plans approved. 
  • You need to have done your DD with your architect before you're locked in. 
    • having an existing relationship with an architect will save you time and money. What I pay is very different than what you will pay for a one off project like this.
    • Use an architect who has worked in this specific area/town
  • Construction (hard) costs will be anywhere from $200-$450/sf plus soft costs and contingency. Totally depends on the area. Speak to an acquisitions guy at a local developer to get a solid number. 
  • Don't forget to include financing costs. construction loans are not cheap. 
Originally posted by @Rachel Li :

Hi Everyone:

I am new to this forum. This is literally the first discussion I posted here. We are currently under an agreement of a 4-plex of 1million. We are debating whether it is a good idea to buy this property or find a better opportunity.

We can build 6 floor 12 units (2bed, 1 bath, 800-1000sqft per unit) on this lot. What would be the approximate cost to build such an apartment building.

Also, if we decide to go this path, how to estimate the market value of apartment building? I never bought any apartment building before. Is the estimation of apartment building similar to residential house? Residential property usually uses comparison of similar house recently sold in that area. But apartment building is quite difficult to find such comparables. If it costs 3 millions to build and the value of this building is only 4million, then it doesn't make sense to me.

Can anyone give me some opinion or suggestions?

Many thanks!

Did you guys end up pursuing this?

Originally posted by @Rachel Li :

Hi Everyone:

I am new to this forum. This is literally the first discussion I posted here. We are currently under an agreement of a 4-plex of 1million. We are debating whether it is a good idea to buy this property or find a better opportunity.

We can build 6 floor 12 units (2bed, 1 bath, 800-1000sqft per unit) on this lot. What would be the approximate cost to build such an apartment building.

Also, if we decide to go this path, how to estimate the market value of apartment building? I never bought any apartment building before. Is the estimation of apartment building similar to residential house? Residential property usually uses comparison of similar house recently sold in that area. But apartment building is quite difficult to find such comparables. If it costs 3 millions to build and the value of this building is only 4million, then it doesn't make sense to me.

Can anyone give me some opinion or suggestions?

Many thanks!

 Very curious to know what you end up doing?

start off getting a price for building either a duplex or 4 plex.  they are considered residential.  anything above that is commercial which is  A LOT more $$.  you should even consider building 2 4-plex buildings and see if your can divide the lot. But think your jumping ahead of your self.  take it slow, buy and hold a rental for a few years before deciding to build.  its like running before learning to crawl and you can fall hard on your face.  losing a LOT of money in the process.

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