Ground up construction rules of thumb
As you know, I’m not a developer; I do rehab deals. That said, I’m a curious guy and I used to spend a lot of time looking for construction deals.
Pretty often, when I was looking at potential projects, I used to find myself wishing for some simple way to estimate the cost of building a structure.
After speaking with a lot of “people who know things” (architects, developers, contractors, etc.), I got to the point where I felt comfortable using $150 / sq. ft. built as a rough estimate.
Now, you need to be careful when you use this number, because it doesn’t include a lot of major expenses that any developer is going to have to cover, including:
- Due diligence costs, mainly soil and environmental
- The land (obviously!)
- Architectural services
- Entitlement (getting the relevant government permissions to actually build)
- Permit fees
- Interest costs on your land acquisition / construction loans
Another thing to keep in mind is that $150 / sq. ft. doesn’t get you the Hermitage. It doesn’t even get you subterranean parking! This is for simple, stick and stucco construction with on-grade parking.
All of that said, that $150 / sq. ft. estimate does get you to a rough approximation of what it would cost to physically build a small apartment or condo project. Happy developing!
Do you disagree with the above? Do you think I’m full of it? Let us know in the comments!