Price Per Unit

The price per unit of in an apartment building. In example; a 100 unit building for sale at $100k would have an effective price per unit of just $1k. Used as a method of comparing competing properties, assessing value and weighing returns between investments.

What does price per unit mean?‍

In a multi family or commercial real estate property, price per unit means the individual price of one unit of the property. As multi-family properties have multiple apartments, the number of apartments are categorized as units and the price allotted to each unit is known as price per unit. This is the same logic behind commercial real estate properties too. 

For example, if an investor is looking to purchase an office building of 100 units which is on sale for $200,000, the price per unit will be $2000.

The price per unit will vary for each project as they are determined after careful consideration of various factors such as the cost of construction, amenities provided in every unit, average per square foot price in the market, etc. 

Why is it important to calculate the price per unit?‍

For investors, the price per unit is an important metric as it allows them to compare the price per unit of different projects and set up a rent for each unit. This further helps them decide which project is in their best interest. For example, if there are two apartment buildings in a 5 mile radius on sale for the same price but one of the apartments has 15 more units than the other, then the investor will choose to purchase the property with extra units at the same price as the cost per unit will be lower. This apartment building will also bring in more rent. 

This brings us to another importance of price per unit metric — the profitability. As investors can compare the price per unit of different projects, they will also use this price to set up a rent amount and then compare which property is bringing in more positive cash flow. If the average occupancy rate is 90% in a given location, then the investor can predict the projected rental income per month from each unit for different projects based on the occupancy rate. Whichever project will bring in more positive cash flow, the investor will choose that. 

How is the price per unit of a commercial real estate project determined?‍

The price per unit of a commercial real estate project is determined by calculating the total cost of a property and dividing it by the number of units in the building. For example, if the cost of a property is $200,000 and there are 100 units in the building, the price per unit will be $2000. 

Here, the cost of the property will include everything from purchase cost, raw materials, to labor and construction to amenities provided and any other cost incurred to acquire and improve the property. Additionally, there are other factors that can influence the price per unit such as location, market demand, value appreciation, etc. 

Conclusion‍

The price per unit is an important factor to consider when investing in a multi family or commercial property as it will give the investor an idea of what to expect as a return on his investment and whether the investment will be fruitful or not. It also helps in comparing different projects in the same market. Furthermore, this metric also helps investors identify if a property is undervalued or overvalued. Hence, it is important to take all factors into consideration when looking at different projects with different prices per unit to choose one that is going to bring maximum benefits.

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