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Multifamily Finance Blog
Last updated on Feb 19, 2023
8 min read
by Content Team

Apartment Complex Construction Costs: Calculator + Guide for Investors

Construction costs are one of the biggest expenses a developer can face. We can help you understand how these costs are changing and how to calculate them.

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In this article:
  1. Apartment Complex Construction Calculator
  2. Multifamily Construction Costs: The Basics
  3. Why Apartment Complex Construction Costs Are Rising
  4. How Construction and Development Costs Are Estimated
  5. Hard vs. Soft Costs for Multifamily Construction
  6. How Much Does Multifamily Development Actually Cost?
  7. Architects’ Role in Multifamily Development
  8. Contractors’ Role in Multifamily Development
  9. The Importance of Understanding Multifamily Construction Costs
  10. Related Questions
  11. Get Financing

Apartment Complex Construction Calculator

Here you can calculate the cost to build an apartment complex based on the number of units and the average unit size:

Multifamily Construction Costs: The Basics

For multifamily investors and developers, construction costs remain one of the biggest expenses, and it looks like costs are only continuing to increase. Unfortunately, these climbing costs could be having a negative impact on the industry as a whole. In fact, in a 2018 report, the National Association of Home Builders linked construction cost increases to multifamily developers’ lack of confidence in the overall market.

Due to these ballooning costs, it’s more important than ever for developers and investors to understand the exact nature of multifamily construction budgets, and why they keep rising so quickly.

Why Apartment Complex Construction Costs Are Rising

According to the National Multifamily Housing Council (NMHC), regulatory compliance is one of the biggest reasons for the increase in multifamily development costs, counting for a staggering 32% of overall costs. While some of these rules and ordinances are clearly necessary (i.e. basic fire safety regulations), others are often needlessly complex. However, compliance costs isn’t the only area where construction expenses are rising. In fact, from September 2017 to September 2018, U.S. construction materials prices shot up by a sizable 7.4%-- enough to put a dent in any development budget. In addition to compliance and materials costs, labor costs have also recently increased, along with tariffs for imported goods, putting added upward pressure on construction prices.

How Construction and Development Costs Are Estimated

In the initial stages of a project, multifamily and commercial developers will typically utilize historical data from previous development projects, attempting to account for similarities and differences in their estimate (much like an appraiser might look at other properties using the sales comparison approach). However, due to constantly changing economic factors, it can be difficult to determine an exact budget, at least at first.

This is partially because, in the early stages of a development project, developers, contractors, and architects often rely on simplified, DIY cost estimation methods. In fact, simple “plug and play” excel construction cost estimate templates can easily be found online. These can usually give developers a good ballpark cost estimate, provided they input accurate information. While DIY spreadsheets are great for estimation, the vast majority of larger projects will bring in a professional construction cost estimator later on in the process. Though this can be expensive, getting an accurate budget estimation before breaking ground can often save developers thousands of dollars in the long run.

Hard vs. Soft Costs for Multifamily Construction

If you’re trying to estimate or analyze multifamily construction costs, it’s essential to understand the difference between hard and soft costs. Hard costs include all costs related to the physical construction of a building, including laying foundations, roofing, landscaping, appliances, and the like. Soft costs are typically intangibles, and include expenses such as permit fees, architectural costs, legal fees, construction loan interest and fees, and other similar expenses. On average, about 37% of a property’s development costs are hard construction costs, 24% are soft costs, and 19% can be attributed to land acquisition costs (and demolition costs, if necessary). The remaining 25% goes the investors in the form of equity returns.

In many cases, developers manage apartment and condo construction projects for a certain fee, but do not provide the majority of the capital. Instead, they usually partner with a group of investors who finance much of the development. Developer fees can vary significantly, but they  are often set at 5% of soft and hard development costs. If the developer also acquired the land for the project, they might charge an additional acquisition fee of 1-2% of the purchase price.

How Much Does Multifamily Development Actually Cost?

According to the most recent cost estimates, multifamily apartment construction currently costs between $64,500 to $86,000 per unit. This estimate uses contractor fees of between $85 and $200 per square foot (psf) to provide a reasonable range between the most and least expensive markets, as the average contractor fee in the U.S. is about $125. The estimate also calculates mason, excavator, and carpenter fees at $70 per hour, painters at $20 to $35 per hour, plumbers at $45 to $65 per hour, and electricians at $65 to $85 per hour.

However, these numbers go out the window in the nation’s largest and hottest markets. For instance, in San Francisco, apartment construction costs currently sit around $330 psf, while in Los Angeles, they currently clock in at a staggering $500 per square foot.

In addition to direct construction costs, architects are also an essential part of the construction and development process, and will typically account for about 10% to 15% of the entire construction and development budget. Commercial architecture firms generally charge between $125 and $250 per hour, though costs may be significantly higher in major markets.  

When calculating apartment and multifamily construction costs, it’s also important to factor unusable and inaccessible space in. On average, about 15% of the square footage of multifamily properties includes space that is either not usable or simply not rented: think elevator shafts, building lobbies, and common areas.

For instance, a 2,000 square feet of construction, would, in practice, only result in 1,700 feet of usable apartment space. This increase is nearly always passed onto the future renters, or owners, if the building is a condo.

To get a good idea of what construction costs can look like for an entire apartment building, consider the table below. These figures represent averages across the country — for construction projects in major primary markets like Manhattan, San Francisco, Seattle, and others, expect these costs to rise significantly higher.

Apartment Complex Size

Estimated Construction Cost

4 units

$258,000 to $344,000

8 units

$516,000 to $688,000

10 units

$645,000 to $860,000

12 units

$774,000 to $1,032,000

20 units

$1,290,000 to $1,720,000

50 units

$3,225,000 to $4,300,000

200 units

$12,900,000 to $17,200,000

To calculate the estimate for different number of units – Try Our Construction Calculator →

Architects’ Role in Multifamily Development

While contractors are responsible for supervising and hiring workers to physically build out a property, architects are responsible for creating detailed plans for the entire development. In many ways, a building is only as good as its plan, so choosing a quality architect is of the utmost importance. The responsibilities of an architectural firm include:

  • Create an initial plan and budget for the project

  • Create a work list and plan outline

  • Draft schematic designs and floor plans

  • Help developer review contractor bids and select a contractor  

  • Review architectural plans with relevant agencies, and obtain needed permits, including general construction permits (some permits may later become the responsibility of the contractor)

  • Collaborate with structural engineers and planning agencies

  • Monitor the contractor’s progress and payment requests

Contractors’ Role in Multifamily Development

Choosing the right contractor is essential, as they’re responsible for the day-to-day management of the construction site. Choose a good contractor and your project will likely go smoothly, and, assuming your initial construction cost estimate was accurate, within budget. Choose poorly, and you may find yourself well behind schedule and over budget-- which can be disastrous, especially since most multifamily development projects are financed with construction loans, which must generally be repaid within a limited timeline.

Overall, the responsibilities of a contractor generally include:

  • Sourcing and purchasing all materials and services to build the property, start to finish

  • Obtaining all relevant construction and utility permits

  • Advising the owner/developer and the architect on the best ways to decrease costs and reduce project timelines (while maintaining or improving quality)

  • Selecting, hiring, and supervising subcontractors

  • Cleaning the entire property after construction is complete

Contractors are typically responsible for sourcing and installing all building elements, as well as taking care of certain administrative functions. These responsibilities generally include:

  • Bath fixtures, plumbing fixtures, plumbing rough-in and connection

  • Cabinets, countertops, and built-in appliances

  • HVAC and insulation for building and individual units

  • Carpets and flooring

  • Exterior finishes and trim

  • Insurance and site/property cleanup

  • Permits, utility work, providing plans and specs for permitting

  • Lighting fixtures, painting, interior wall finish

  • Doors, windows, roofing and wiring

  • Rough/finish carpentry and hardware

  • Property excavation, foundation, piers, and flatwork

The Importance of Understanding Multifamily Construction Costs

Whether you want to get your hands dirty with a massive real estate development project, or you simply want to passively invest in apartment construction or rehabilitation, understanding multifamily construction costs is essential. Though costs vary significantly by area, understanding national and local cost averages for contractors, subcontractors, architects, materials, and other expenses can help you ensure that you aren’t grossly overpaying for any part of your project. Perhaps just as importantly, you can make sure you aren’t investing with a developer who doesn’t place a priority on effective budgeting.

Related Questions

What are the most important factors to consider when calculating construction costs for an apartment complex?

When calculating construction costs for an apartment complex, there are several important factors to consider. These include the cost of labor, materials, and subcontractors; the cost of architects and engineers; and the cost of permits and fees. Additionally, it is important to factor in the cost of any unexpected expenses that may arise during the construction process.

According to the Multifamily Construction Costs: An Investor Guide, labor costs are typically the largest expense for multifamily construction projects. This includes the cost of contractors, subcontractors, and any other labor costs associated with the project. Materials costs are also a major factor, and can include the cost of lumber, drywall, and other materials needed for the project. Additionally, the cost of architects and engineers should be taken into account, as well as the cost of permits and fees. Finally, it is important to factor in the cost of any unexpected expenses that may arise during the construction process.

What are the typical construction costs for an apartment complex?

According to the most recent cost estimates, multifamily apartment construction currently costs between $64,500 to $86,000 per unit. This estimate uses contractor fees of between $85 and $200 per square foot (psf) to provide a reasonable range between the most and least expensive markets, as the average contractor fee in the U.S. is about $125. The estimate also calculates mason, excavator, and carpenter fees at $70 per hour, painters at $20 to $35 per hour, plumbers at $45 to $65 per hour, and electricians at $65 to $85 per hour.

However, these numbers go out the window in the nation’s largest and hottest markets. For instance, in San Francisco, apartment construction costs currently sit around $330 psf, while in Los Angeles, they currently clock in at a staggering $500 per square foot.

In addition to direct construction costs, architects are also an essential part of the construction and development process, and will typically account for about 10% to 15% of the entire construction and development budget. Commercial architecture firms generally charge between $125 and $250 per hour, though costs may be significantly higher in major markets.

When calculating apartment and multifamily construction costs, it’s also important to factor unusable and inaccessible space in. On average, about 15% of the square footage of multifamily properties includes space that is either not usable or simply not rented: think elevator shafts, building lobbies, and common areas.

For instance, a 2,000 square feet of construction, would, in practice, only result in 1,700 feet of usable apartment space. This increase is nearly always passed onto the future renters, or owners, if the building is a condo.

To get a good idea of what construction costs can look like for an entire apartment building, consider the table below. These figures represent averages across the country — for construction projects in major primary markets like Manhattan, San Francisco, Seattle, and others, expect these costs to rise significantly higher.

Apartment Complex Size Estimated Construction Cost
4 units $258,000 to $344,000
8 units $516,000 to $688,000
10 units $645,000 to $860,000
12 units $774,000 to $1,032,000
20 units $1,290,000 to $1,720,000
50 units $3,225,000 to $4,300,000
200 units $12,900,000 to $17,200,000

To calculate the estimate for different number of units – Try Our Construction Calculator →

What are the best ways to finance an apartment complex construction project?

The best ways to finance an apartment complex construction project depend on the size and scope of the project. For light improvement work, such as fixing holes in the roof and doing landscaping, you may not need to tap into additional financing. However, if you're doing more extensive work, such as upgrading HVAC systems or replacing windows, flooring, and appliances, it may be best to take out a loan or look into a line of credit. Bank, credit union, life company, or CMBS loans could be ideal for financing your renovations. Refinancing on an asset's appreciated value may also provide sufficient capital for your needs.

What are the tax implications of investing in an apartment complex construction project?

Investing in an apartment complex construction project can have a variety of tax implications. The most important of these is capital gains tax, which is paid whenever a taxpayer generates a profit from disposing of an asset such as commercial real estate. Capital gains taxes do not apply to ordinary personal and business income or the sale of an individual’s primary residence. Additionally, multifamily real estate is an ideal investment from a tax perspective. Not only can investors take substantial mortgage interest and depreciation deductions, but they can also often deduct travel and utility costs, as well as other expenses. For more information, please consult a tax professional.

What are the risks associated with investing in an apartment complex construction project?

There are a few risks to consider before investing in an apartment complex construction project. Construction costs have risen dramatically over the past few years, and this can impact renovation work as well as ground-up development projects. Make sure you do your research and plan ahead with a strong budget before beginning apartment renovations to avoid any nasty surprises. Construction delays are also an unfortunate fact of life, and due to supply chain issues, some cannot be avoided. It may be best to take a very conservative approach in terms of your project timeline. Additionally, your renovation work may simply not be enough to get the investment outcome you’re looking for. You may invest a lot of capital to add the highest-end luxury amenities to a property built in the 1980s, but if potential renters are looking for a newer building, you may not see much of an uptick in occupancy or rental revenue.

For more information, please see How to Renovate Your Apartment Complex and What are the Pros and Cons of Owning an Apartment Complex?.

What are the best strategies for minimizing construction costs for an apartment complex?

The best strategies for minimizing construction costs for an apartment complex include:

  • Hiring experienced contractors and subcontractors who are familiar with the local market and can provide competitive bids.
  • Using cost-effective materials and supplies that meet the project's quality standards.
  • Negotiating with suppliers to get the best prices.
  • Working with an experienced architect who can help you design a cost-effective building.
  • Creating a detailed budget and timeline for the project and sticking to it.
  • Using a construction loan to finance the project, which can help you manage costs and cash flow.

For more information, please see Multifamily Construction Costs: An Investor Guide.

In this article:
  1. Apartment Complex Construction Calculator
  2. Multifamily Construction Costs: The Basics
  3. Why Apartment Complex Construction Costs Are Rising
  4. How Construction and Development Costs Are Estimated
  5. Hard vs. Soft Costs for Multifamily Construction
  6. How Much Does Multifamily Development Actually Cost?
  7. Architects’ Role in Multifamily Development
  8. Contractors’ Role in Multifamily Development
  9. The Importance of Understanding Multifamily Construction Costs
  10. Related questions
  11. Get Financing

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