Three-story wood-frame apartment buildings are a construction format drawing more attention in rental property management. Following the 2019 revision to the Building Standards Act, design flexibility increased, making it easier to develop highly profitable properties even on small sites. In this article, we explain the definition of a three-story wood-frame apartment building, its investment advantages and disadvantages, and the land conditions best suited to it.
What is a three-story wood-frame apartment building?
We define a residence that meets all four of the following conditions as a "three-story wood-frame apartment building."
- It is built in an area outside designated disaster prevention zones
- Its structure satisfies the applicable technical standards
- It has three above-ground stories, excluding any basement, and all space is used as an apartment building, boarding house, or dormitory
- Each bedroom has a balcony that can be used as an evacuation route
Following the June 2019 revision to Article 27 of the Building Standards Act, small sites with a total floor area of less than 200 square meters became eligible for design and construction without requiring a fully fire-resistant building. This has made substantial construction cost reductions possible.
What are the advantages of a three-story wood-frame apartment building in rental property management?
For investors and owners, the following five advantages are especially important.
Lower construction costs than steel or reinforced concrete buildings
Wood-frame buildings are lighter than steel and reinforced concrete structures, which also helps reduce foundation work and ground preparation costs. Keeping initial investment lower makes it easier to recover capital sooner.
Additional cost savings through Building Standards Act exceptions
Because the 2019 legal revision made quasi-fire-resistant construction possible, building costs can be kept lower than with fully fire-resistant buildings. This is particularly favorable for investors who want to make effective use of small sites.
Short statutory useful life creates tax advantages
Because the statutory useful life of a wood-frame building is only 22 years, compared with 34 years for steel and 47 years for reinforced concrete, depreciation expense increases and taxable income can be reduced earlier. The tax-saving effect can be significant in rental property management, improving the speed of capital recovery.
High design flexibility
Wood is easy to process, allowing flexible responses to different design plans. Even from the standpoint of differentiation strategy, one clear strength is the ease of creating distinctive layouts and designs.
Higher profitability on small sites by increasing total floor area
By building three stories, owners can secure more units and improve profitability even on a compact site. Because rental management can work even on small urban plots, the range of viable location options expands.
What are the disadvantages of a three-story wood-frame apartment building in rental property management?
Higher construction costs and longer schedules than a two-story building
A three-story building requires "quasi-fire-resistant performance" and "char-depth design," which means using thicker columns, beams, and gypsum board, raising construction costs. Please also keep in mind that the average construction period is about four months for a three-story building, compared with an average of three months for a two-story building.
Suitable land is limited
In disaster prevention zones, a fire-resistant building is mandatory, which can drive costs up to reinforced concrete levels. As a result, sites outside disaster prevention zones with a floor area ratio of roughly 160% to 200% are generally suitable for three-story wood-frame buildings.
Few builders can handle this type of project
There are not many companies that both employ qualified structural calculation professionals and have experience constructing three-story wood-frame apartment buildings. The time required to choose the right company should also be taken into account.
Frequently Asked Questions (FAQ)
Q. How much does it cost to build a three-story wood-frame apartment building?
It is less expensive than steel or reinforced concrete construction, but more expensive than a two-story wood-frame building. Unit costs vary by region and specification, but for quasi-fire-resistant specifications, a useful benchmark is around 60% to 70% of the cost of reinforced concrete construction.
Q. What happens to rental property management after the 22-year statutory useful life has passed?
Rental operations can continue after the statutory useful life has passed, as long as the building remains usable. However, because financial institutions may assign a lower valuation, early planning is important if additional financing is being considered.
Q. Can a three-story wood-frame building not be built in a disaster prevention zone?
It can still be built in a disaster prevention zone if it is designed as a fire-resistant building, but that comes with costs comparable to reinforced concrete construction. If you want to preserve the cost advantages of wood-frame construction, it is better to choose land outside a disaster prevention zone.
Q. How should I find a trustworthy builder for a three-story wood-frame apartment building?
Please make sure to confirm two points: that the company has qualified professionals for structural calculations, and that it has actual construction experience with three-story wood-frame apartment buildings. It is also important to obtain and compare estimates from multiple companies.
Q. What changed with the 2019 revision to the Building Standards Act?
For small sites with a total floor area under 200 square meters, design and construction became possible even without meeting all four of the previously strict building requirements. As a result, both construction costs and design constraints were significantly eased.
