#5 [Case Study | 14% Yield on 1st New Apartment Building] How to Create Low Construction Costs
My first new apartment building had a gross yield of 14%.
After acquiring the land, I obtained competitive quotes from eight construction companies.
The final construction cost presented was approximately 4.5 million yen per unit (including exterior work).
However, this price was not achieved through aggressive price cutting.
I did not demand unreasonable discounts from the builder,
but rather, it was the result of presenting the work in a way that lowered construction costs while still allowing the builder to make a profit.
This is the story of how that happened.
How to create low construction costs
There are three main things I did to create low construction costs.
Keep building the same type of structure.
Build continuously.
Standardize specifications.
Doing this leads to:
Lowering the multiplier for building materials
Increasing the volume of housing equipment
Reducing man-hours for design, specification review, and meetings
As a result, construction costs consistently decrease.
Building continuously
Another major factor was building continuously.
I told Company A,
"I would like to build about one building every year."
At that point, I didn't think I would be able to build more than that.
As it turned out, I ended up building about 3 to 4 buildings every year after that,but at the time, I didn't expect it to increase that much.
However, for the builder, there are benefits:
Being able to anticipate a steady annual revenueBeing able to retain skilled workersIncreasing the order volume for building materials
These are the advantages.
This is the story of how that happened.
As a result, the discount rates for building materials and labor costs for craftsmen tend to decrease.
Apartments have a higher quantity of equipment
Apartments have another characteristic: the quantity of residential equipment.
Kitchen
Unit bath
Toilet
Washbasin
For a single detached house, you need one set of each.
However, for an 8-unit apartment building, you need eight sets of each.
In other words, the labor required per building does not differ significantly between a detached house and an apartment, but the order amount changes significantly.
the order amount changes significantly.
For residential equipment manufacturers, this is a project that generates a large amount of sales at once.
As a result, it becomes easier to lower the discount rate.
Standardizing specifications
To continue building the same type of building,
it is necessary to standardize specifications.
For residential equipment and interior specifications,
I used the same items as much as possible.
The manufacturer is the one designated by the construction company, but
I chose general-purpose grades.
The basic floor plan specifications are
the same as the model property.
I present the exterior and interior specifications here
and decide them at the manufacturer's showroom.
Meetings with the builder
are reduced to reporting the results.
Reduced man-hours for design, specification review, and meetings
When you continue to build the same building, the design content also changes.
Design loses its planning elements and becomes a matter of building application procedures.
This is because there are drawings for the model property, so you just need to follow them.
Also, since exterior, interior, and fittings are decided at the showroom,
the builder is hardly involved in specification review.
Since the same client continues to build, a salesperson is also unnecessary.
In short,
Design
Specification review
Sales
On-site meetings
These processes are reduced.
In other words,
The builder hardly has to do any 'thinking work'.
Design becomes an application process, and the specifications are already set.
It just becomes a matter of repeatedly building the same structure.
Basic building pattern
The composition of the first building was
Six 1LDK units of 30 square meters each
Two studio units with lofts
That was the composition.
After that, I continued to build two patterns: a multi-family housing unit based on this building with minor changes, and a row-house type with 1LDK units.
A conversation with the construction company president
The president of the construction company said something like this.
I used to do subcontracting work for major house manufacturers.
However, the unit price was quite low, and there wasn't much profit left.
Compared to that,
"The work on this apartment is good."
the president said.
I can work as a prime contractor and keep building the same structure.
There is also a decent profit.
He said that even at 4.5 million yen per unit, it is a job that is fully viable.
Listening to that story, I felt that the construction costs for house manufacturers
must be quite low.
The reason for the high yield
When I looked at the comparative estimates, I was able to understand it little by little.
Construction costs are not something you lower by haggling.
If you offer work in a way that is also beneficial to the construction company,
construction costs will naturally go down.
The result of that was a gross yield of 14%.
