Moses Kagan on Real Estate

Ground up construction rules of thumb

with 2 comments

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!

Written by mjkagan

08/07/2012 at 4:15 am

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