Cost segregation on apartment buildings: why unit count is the whole story

The repeating package

Every apartment contains substantially the same set of 5-year assets: refrigerator, range, dishwasher, microwave, disposal, in-unit washer and dryer where present, kitchen and bath cabinetry, vanities, countertops, carpet or luxury vinyl plank, window blinds, decorative light fixtures and ceiling fans, plus the dedicated circuits serving them.

Price that package once and multiply by unit count. On a 184-unit community it is a seven-figure category before anyone looks outside.

The amenity layer

Clubhouse and leasing office build-out, fitness equipment and rubber flooring, pool equipment and controls, package lockers, access control and gate operators, cameras, dog wash stations, coffee bars and co-working fit-out. Nearly all of it is personal property.

The site, which is bigger than people think

Garden-style communities carry enormous 15-year land improvement cost: parking, drive aisles, carport paving, sidewalks, pool decking and hardscape, playgrounds and dog parks, sport courts, site and landscape lighting, landscaping, irrigation, fencing, retaining walls, storm drainage and detention, mail kiosks and monument signage.

On many garden-style properties site improvements alone exceed 10% of total basis.

Typical range

20% to 30% of depreciable basis, with the high end on amenity-heavy, low-density communities and the low end on urban mid-rise where the structure dominates and there is little site.

The 80% test

Residential rental treatment at 27.5 years requires that 80% or more of gross rental income comes from dwelling units. In mixed-use buildings with ground-floor retail this is tested annually and can flip. Get it wrong and every downstream number is wrong.

Where owners leave money

Value-add renovations. An owner who spends $8,000 a unit on new cabinets, counters, flooring and appliances across 120 units has $960,000 of overwhelmingly 5-year property — which routinely gets capitalised to the building at 27.5 years because it went in as one invoice line called “unit renovations.”