How to calculate cost per unit (price per door) on a multifamily deal

What cost per unit means

Cost per unit is the price of a multifamily building divided by its number of units. Investors also call it price per door. A 14-unit building listed at $1,610,000 is $115,000 per unit. It is the fastest way to compare a 6-unit building with a 20-unit building on the same scale.

There are two versions, and you should know which one you are looking at. Price per unit uses the purchase price only. All-in cost per unit adds closing costs and the repairs you have to do right away. Brokers and sales reports usually quote the first. Your real cost, the whole package you pay for, is the second.

The formula

Price per unit = purchase price ÷ number of units.

All-in cost per unit = (purchase price + closing costs + day-one repairs) ÷ number of units.

Use the same unit count for every per-unit number on the deal: rent, NOI, expenses, and equity. If you count 14 units for the price, divide the rent by 14 too. Mixing counts is how a deal looks cheaper than it is.

Example

Illustrative example. These are made-up numbers so the math is easy to follow, not a real listing. A 14-unit building has ten 1-bedrooms and four 2-bedrooms. The asking price is $1,610,000. Price per unit is $1,610,000 ÷ 14 = $115,000.

All-in cost. Closing costs are $48,300 (3% of the price). Five units need turns at $9,000 each, $45,000, and the roof needs $53,000, so day-one repairs are $98,000. All-in cost is $1,610,000 + $48,300 + $98,000 = $1,756,300. All-in cost per unit is $1,756,300 ÷ 14 = $125,450, which is $10,450 more per door than the price alone suggests.

Rent per unit. The 1-bedrooms rent for $1,120 and the 2-bedrooms for $1,400. That is $16,800 a month, or $201,600 a year. Rent per unit is $1,200 a month, or $14,400 a year. Gross rent is 12.5% of the $115,000 price per unit.

NOI per unit. Say verified NOI is $112,700 a year. That is $8,050 per unit. On the price, the cap rate is 7.0% ($112,700 ÷ $1,610,000). On the all-in cost it is about 6.4% ($112,700 ÷ $1,756,300). Same building, same rent, a lower return once you count what you really pay.

Price per square foot. The building has 11,200 rentable square feet, so the price is about $143.75 a square foot. A second 14-unit building of studios at $105,000 a door looks $10,000 cheaper per unit. But at 450 square feet each, that is $1,470,000 for 6,300 square feet, about $233 a square foot. If the studios rent for $950, gross rent is $11,400 a year per unit, about 10.9% of price. Cheaper per door is not the same as a better buy.

What price per unit can and cannot tell you

It is a good first screen. Compare it with recent sales of similar buildings in the same area: same age, same unit sizes, same condition. A price far above those sales needs a reason, such as higher rents or a newer roof. A price far below them usually has a reason too.

It does not tell you whether a deal works. Two buildings at the same price per unit can have very different rents, taxes, utility setups, and repair needs. Cap rate, cash flow, and the cash you need at closing decide that. Use per-unit numbers to sort deals, then run the full math on the ones that survive.

Building new is a different number. Construction cost per unit adds land, hard costs, soft costs, and financing during construction. This guide is about buying an existing building, and it does not give construction cost figures.

Other per-unit numbers worth knowing

Rent per unit, NOI per unit, and expenses per unit put income and costs on the same scale as the price. Expenses per unit are a quick check on a seller's numbers. A pro forma that shows much lower expenses per door than similar buildings deserves questions.

Equity per unit is the cash you put in divided by the units. Reserves are often budgeted per unit per year too. The multifamily calculator uses $300 per unit as its sample reserve. Your lender or your own history may call for more.

Common pitfalls

Comparing an all-in cost per unit on your deal with a purchase-price-only figure from a sales report. Put both on the same basis before you decide one is cheaper.

Counting units you cannot legally rent. An unpermitted unit, a converted garage, or an office can make the price per door look low on paper. Ask what the city recognizes.

Ignoring unit mix. A building of studios and a building of 3-bedrooms at the same price per unit are not the same deal. Check price per square foot and rent per unit next to it.

Leaving day-one repairs out. A roof, a boiler, or several vacant units that need work are part of what you pay for the building. Price them, add them, and divide again.

Run your own numbers

The free multifamily calculator turns rents and a price into year-1 cash flow, cap rate, and the cash you need at closing. It uses a fixed 10-unit sample mix, so divide its price and equity by 10 for the per-unit view, or open the full unit mix to type your real counts. For repairs, the rehab cost estimator gives a rough base from square feet and a cost per square foot you choose. A subscription opens the full unit mix, every expense line, and a five-year pro forma.

Steps

1. Count the rentable units

   Count only legal units you can rent. Leave out storage rooms, an unpermitted basement unit, and any commercial space, which you value separately.

2. Divide the price by the units

   Purchase price divided by the unit count is the price per unit, also called price per door.

3. Add closing costs and day-one repairs

   Add closing costs and the repairs you must do right away to the price, then divide by the units. That is your all-in cost per unit.

4. Put rent and NOI on the same per-unit basis

   Divide yearly rent and NOI by the same unit count so you can see what each door earns against what it costs.

5. Check price per square foot and the unit mix

   Divide the price by the rentable square feet. If two buildings have very different unit sizes, per-door figures alone will mislead you.

6. Run the full numbers

   Put the rents, expenses, and loan into a multifamily calculator to see cash flow, cap rate, and the cash you need at closing.

Questions