This is Part 1 of a series of articles, dedicated to giving a complete breakdown on the cost of building townhouses in Alberta.
Updated Numbers - Winter 2023
Are you looking to build a townhouse, but not sure where to start? Having worked with hundreds of investors across Canada, one of the first questions they ask is: How much will it cost to build a townhouse?
What investors really want to know is – "Can I build a townhouse(s), and will it be profitable?"
Before we dive in, there are few things we need to clarify first:
1. 75% of the real estate investors we work with are looking at Inner City (Calgary, AB) Townhouse projects. Specifically, townhouses with basement suites.
The reason behind this is simple; townhouses with basement suites are where you will derive the highest value per square foot. This is especially true if you can rent the basement separately.
2. The cost breakdown example below is of a recent project in Calgary, AB. Prices are real, and taken directly from projects we've completed within the past 6 months (revised for Dec 2023).
It goes without saying, but prices have risen since then. So, to be safe, you can add 5-10% to the overall prices to match todays prevailing hard costs. (Hard costs being the actual construction cost of the townhouse).
3) The goal is not to give you an exact price of what it will cost to build, but to give you the range of variables to consider in todays economy.
So, back to the original question... What does is cost to build a townhouse today?
For a traditional inner city townhouse, 1,350 - 1,500 sq.ft (above grade), with a suited basement (400- 600 sq.ft) and detached garage, you can expect to be in the $440,000 - $490,000 range (depending on size, level of finishes and site conditions).
In this article, you’ll see cost breakdowns taken from 3 of the most popular townhouse options. The information, with complete breakdowns by division of construction are meant to provide you a “Back of the Envelope” cost.
In construction and real estate, there are endless options we could discuss. It would not be as helpful to try and capture every scenario in these costs. Doing so would create more confusion and a watered down, vague cost breakdown.
To get the most value from this article, here are some important Variables and Questions to start with:
1) Style: Which style of townhouse are you building?
2) Size: What is the approximate size of the townhouse you’re building?
3) Location: Are you building Inner City vs Greenfield? (Inner City is more complex and costly)
4) Current Market: What is the environment you’re building in (how hot is the real estate market)? Costs are constantly changing.
Last month lumber futures were trading up. This week, they are trading down. Overall, costs of materials and labor are trending up.
5) Labour Market: Again, what market are you building in? How easy/hard is it to get skilled trades?
As part of the total cost, we will share what Kalamoir charges if you were to hire us to build your townhouse. You don’t need to engage or hire us (or any other contractor) to build, you could do this entirely on your own.
We build in the range of 250-400 townhouses/year; so we’ve become extremely good at building townhouses, often faster and cheaper than most seasoned developers.
There’s a reason some of Calgary’s larger Inner-City developers (RNDSQ) rely on us to build.
What are the different types of Townhouses?
Option 1: The Inner City Stacked Townhouse
This is the most common type of townhouse real estate investors and developers build. Most inner-city developers are looking to maximize their rental potential by adding in basement suites.
Above: Figure 1, Our "Shag 5" Townhouse Project (completed and rented)
Pros:
Greater potential for rent with basement suite
Ideal on corner sites (can be done mid block, more complex and generally back units are less desirable)
Multiple exits – sell to owners who want suited basements (nanny suite or rental helper) or investors looking for cash flow
Can separate utilities for billing (more expensive)
Cons:
More expensive (moving utilities, tying into existing services, unknown extras from The City)
Zoning issues to consider with basement suites – relaxations require notifying neighbors and can delay construction.
Basement units sometimes are below grade and can be dark, and a lack of natural light can make them harder to lease up
Parking can be an issue (if you are squeezing 4 upper + 4 lower) onto one 50 x 120 lot onsite parking is typically 4. Which means you may require relaxations from the City (and resistance from neighbors) unless zoning permits.
The hard cost for a 5 x 5 (as seen above) which broke ground in Dec 2021, was $1.9M or $380,000/ Stacked Townhouse.
Today, (Dec 2023) the cost to build this same townhouse would be roughly $2.25M - $2.45M or $450,000 - $490,000 per upper and lower unit.
Option 2: Greenfield Row Townhomes
If you’re buying land in a new community, the other popular style of townhouse is the “Rowhome”. This is essentially 4 - 8 townhouses in a row, all attached to one anther.
Pros:
Cheaper to build
Ideal if you are in greenfield developments (you are buying 1-4 acres directly from a developer)
Can be built for rent or for sale – multiple exits
Can separate utilities
More parking options (above – these units all have double car, attached garages)
Good options with CMHC financing to build for rent (with less equity)
Cons:
Generally larger projects and not ideal for newer developers
Larger upfront costs
More complex with civil considerations and servicing your site
Density is key – to get your UPA (units per acre) to a level that makes the deal economical
Small changes in the cost can make these units unaffordable to build for rent
As of this writing, the hard cost per row townhouse here ranges from $225,000 - $260,000. The sizes range from 1,150 – 1,300 sq.ft. All include garages.
Overall, we would not recommend this style for a developer without experience building and doing greenfield developments. The capital, complexity and time to build are more intense. You are also competing with large scale developers at this level and 2-5% changes in prices and rents can impact your project to where it is no longer financially feasible.
Option 3: Duplex with Basement Suite
This is the last option, and is interesting. While we don’t have direct experience in building these types of projects, we are seeing several reputable developers doing it successfully.
Above: Semi Detached Duplex with Basement Suite, Truman Homes
Pros:
Greater potential for rent with basement suite
Generally need a back lane and street parking
Multiple exits – sell to owners who want suited basements (nanny suite or rental helper) or investors looking for cash flow
Can separate utilities for billing (more expensive)
Basement units are much larger (higher rent)
Cons:
More expensive to build
Zoning is hard to find
Basement units sometimes are below grade, can be dark, and a lack of natural light can make them harder to lease up
Parking can be an issue.
Using similar pricing as the Stacked Townhouse, you could expect to be in the $440,000 - $525,000 range. They are more expensive, mainly due to size – the basements and upper units in these duplexes are larger than inner city stacked.
So, which option should you pursue?
Option 1 – Stacked Townhouse - $450,000 - $490,000
Option 2 – Row Townhouses in Greenfield - $225,000 - $260,000
Option 3 – Duplex with Basement Suite - $440,000 - $525,000
Next, let's review the cost of 'Everything Else'... (what some investors miss):
1. Land:
Option 1 – Stacked Townhouse: $130,000 - $200,000 per Stacked Townhouse
In the 5 + 5 Example, we paid $780,000 or $156,000 (purchased in early 2021)
Option 2 – Row Townhouses in Greenfield - $30,000 – $80,000
Depends on so many variables, too long to list.
Option 3 – Duplex with Basement Suite - $200,000+
2. Site Servicing:
Varies for each development. In the inner city, there doesn’t seem to be a rule book. It is important to understand what is expected from the City when you tie into their services.
Greenfield: $25,000 - $35,000 range
3. Soft Costs:
(Architect/ consultants/ taxes/ insurance/ permits/ legal/ survey/ leasing etc)
We generally account for 15% - 20% of the total cost.
So, if a project is going to cost $2M, soft costs could be $300,000 - $400,000.
4. GST (Not Accounting advice)
It's important to factor in GST. Often new developers don’t take into account GST due to the government. And, more importantly, when you submit for your construction draw, the bank does not finance your GST.
What does this mean?
Let’s say your builder or the trades invoice you $200,000 (after holdbacks) + GST ($10,000)
You submit your invoice to the QCS (quantity cost surveyor) and they submit to the bank.
The bank will advance $200,000. You are responsible for paying $210,000. If you’re not careful, you can be short paying your builder/trades.
Now, you can claim this from CRA, but it take weeks/months to get back. So, plan ahead and ensure you have adequate cash flow to cover the GST.
So what is the Final Cost of a Townhouse?
In our experience, from a developer/investor perspective, the cost ranges and is really a product of what rents can be achieved. Investors build specifically to lease out; which means, the rent that can be achieved must support the cost – or the project is not worth pursuing.
Option 1 – Stacked Townhouse: $600,000+
Option 2 – Row Townhouses in Greenfield - $350,000+
Option 3 – Duplex with Basement Suite - $550,000+
As you can see, the cost of a townhouse can vary depending on what you’re building, where it’s located, and the finishes you want.
Should You Build Yourself, or Hire a Contractor?
Costs in this article included the Contractor fees.
If you decide to build on your own, you would save on the fee of hiring a GC to manage this process for you.
If you’re a skilled builder with connections to trades and suppliers, you would save money on fees to engage a contractor.
In our experience, we see both new and experienced developers underestimating the amount of time, energy and complexity in building townhouses. You need to expect to be on the job site daily, actively managing the process.
The rules of building Inner City Townhouses change frequently with new polices and building code. What worked 12 months ago, may no longer be applicable. It is one of the reasons we wrote this article – to give you proper expectations on what it cost to build.
In most cases, our clients are experienced developers who have built multiple projects and still engage us as their general contractor.
Why?
Because the tradeoff of having someone with experience manage the process is important. There is also the savings that are passed on when your GC is buying $5-10M of lumber each year vs a one off project. Save 5-15% across a $2M project and using a seasoned GC could actually save you money.
How long will it take to build?
Most townhouse projects typically take 12- 16 months. After completing several hundred townhouses, Kalamoir can deliver in 10-12 months.
How much does a Contractor Charge to Build?
We can’t quote what other contractors charge. Just be aware the fee being quoted can be misleading, as there are hidden charges, in the General Conditions and/or Self Performance that can be additional profit centers for contractors.
At Kalamoir, our fee ranges from 3% - 6% (depending on the size of project and location).
The fee is based on several factors; including the level of risk we take on.
Fixed Price Contracts carry more risk, thus require a contractor to include more contingencies and charge a higher fee. This would be typically done in a Fixed Price CCDC
The alternative would be a Construction Management Agreement. Which means the contractor is really your representative building the project for you. You see all the expenses from the trades and pay them direct. This option has less risk for the contractor because they are managing the building process – but not guaranteeing the cost.
For our more experienced developers, they generally go the Construction Management (CM) route.
There is no right or wrong way... It’s good to understand your options!
The Kalamoir Way
Before we start building your project, our first step is to work with you through pre-construction, the design phase. We do this for a few reasons.
First, our goal is to build your project on budget and on time. To guarantee this, we play an active role in the design phase, specifically to ensure your drawings and consultants are all integrated properly.
For a $2M townhouse build, the investment would $10,000, and is backed by our 2x Guarantee. If we don’t save you a minimum of $20,000 (2x the Pre-con Fee) you don’t pay us. And we don’t expect you to build with us.
The most common mistakes developers experience often happen at the design phase, but don’t actually show up until construction. This leads to change orders and finger pointing. Ultimately, it’s the developer that has to take on these added costs.
Regardless of who you use to build, our strong recommendation is to engage a builder at the design phase. Place the responsibility of building on budget and on time on your Contractor. You do this by engaging the contractor to be part of the design – so they can’t use the common excuses of blaming the architect, drawings or consultants.
So, what are your next steps?
After reading this article you likely have a much better idea of how much a townhouse costs to build. Check back soon for our next article where we will cover some of the more specific cost categories related to construction of townhouse projects!
If you would like to discuss how we could help you on your next project – please click the link below to schedule a quick 15-minute call. We would be happy to talk about your project; if we think we can add value, we’ll let you know. If we can’t, we can point you in the right direction.