How useful is calculating ‘￡ per square foot’?

I am currently helping a landlord find a suitable rental property to add to his portfolio. I suggested an array of two-bedroom houses in Tangmere, which, amongst other things, I highlighted as offering excellent value when considering their ‘￡ per square foot’. The landlord was a little baffled as to what this was and why it was important.?

I explained that ￡ per square foot is one of the metrics I always use when analysing a potential property purchase (property price divided by total square footage of the property) as it gives an idea of the value for money you are getting.

Obviously, you have to consider the quality of the ‘square foot’ you are calculating i.e. an immaculate property in the best part of town will rightly cost more on a square foot basis than a rundown shack in a less desirable area.

When comparing similar homes in the same neighbourhood though, it can be a good gauge as to how much you should be paying for a particular property. Most estate agents will just talk about the number of bedrooms as an indicator of size, but this is an unfair comparison when a large bedroom has been split in two or a living room has been redesignated as a ‘bedroom’.

It can also become a powerful negotiation tool. Being armed with the knowledge of comparable properties is one thing, but the ￡ per square foot metric brings a level of objectivity to negotiations (although it does ignore garden size).?

Back to the search at hand…

There are currently four traditional ‘two-up two-down’ houses in Tangmere, all with a garage and within 500 yards of one another. They are priced at ￡249,500, ￡259,950, ￡270,000 and ￡300,000.

Based on that, it seems pretty obvious which one to plump for right? This is where my trusty ￡ per square foot calculation comes in handy.

The ‘cheapest’ of the two-bed houses would be a decent buy at ￡249,500; and with a footprint of 605 square feet means it would cost ￡412 per square foot.

Spending ￡10,450 more will get you an additional 50 square feet, bringing the overall cost down to ￡397 per square foot.

The ￡270,000 option is the smallest of them all (at 588 square feet). That equates to ￡459 per square foot, placing it bottom of the pack when considering ‘bricks for your buck’.

The most expensive of the four (priced at ￡300,000) is also the biggest thanks to the addition of a 90 square foot conservatory. Whilst conservatory space is normally less ‘valuable’ than original house space (traditional conservatories are cheaper to add on than bricks and mortar), this one warrants using its total 745 square feet when calculating a cost of ￡403 per square foot.

The eagle-eyed amongst you will note the most expensive house is NOT the outright cheapest when it comes to ￡ per square foot (going against the narrative I was surely spinning). But, when you factor in each property’s condition and the works required to bring all four houses up to an immaculate standard, you soon realise it does in fact warrant the (small) extra expense when using this metric.?

Furthermore, this is where I believe those who are ‘in the know’ could use the traditional headline figures to work for them. Give it a little time and, having been overlooked as ‘expensive’, I suspect a price reduction is likely before it eventually sells.?

Also, do you think it will be easier to negotiate the price of the already ‘cheap’ two-bed houses downwards, or do you think it will be easier to state the fact that, at ￡300,000, this one seems pretty pricey considering you can get a similar two-bed house round the corner (albeit in need of some work) for ￡50,000 less??

By using this knowledge to your advantage, I think you could end up bagging a bit of a bargain by getting the best of the comparable properties on offer for a better price; ultimately meaning that it would become the cheapest on a ‘￡ per square foot’ basis.

If you are thinking of buying a rental property and would like me to crunch the numbers on it to ensure you are maximising your investment, please get in touch..

If you’re thinking of investing in buy-to-let and would like some free advice about whether your local area can meet your needs, please get in touch.

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