photo credit: TheAlieness GiselaGiardino²³
In most case, rent of shopping centers and office buildings is established on a dollar per square foot per month basis. A 500-square-foot office renting for $7.00 per square foot per month will bring $7.00 x 500 or $3,500 monthly income.
How important is the square footage of a rental apartment? Most rents are based on ‘x’ number of bedrooms per unit. An apartment that has two bedrooms will rent for more than a one-bedroom unit.
But can you expect a 1,000 square-foot, one-bedroom apartment to rent for more than a comparable one-bedroom apartment with only 900 square feet of living space? Probably not.
Rent for more or sell for more?
When a tenant has a choice of the two, at the same rent, all else being equal, he will obviously take the larger unit. Conversely, he will pay as much or more for the smaller one if it is in a better neighborhood, better maintained, or offers additional amenities. Market conditions are the primary determining factor.
Builders and developers, on the other hand, know how much an apartment complex cost them to build based on a dollar amount per square foot of apartment. In the initial establishing of sales, a developer may determine that he must sell his apartments at $100 per square foot in order to cover his cost in the project, spread out over the number of units he considers reasonable to break even his investment, plus make a profit. A 1000-sqaure-foot apartment will then sell for $100,000.
We have heard investors say, “those apartments are too small.” They chose to ignore the fact that the units were comparable in sixe to others in the area. More importantly, the building stayed rented at good, competitive rent, and that is the prime requisite in purchasing in the first place.
Sri Wangi apartment in Tampoi discussed in our previous post “How to increase the return of an investment property to more than 20%?” is a typical example. The 3-bedroom unit is less than 1200 square feet. There is another corner-type of 3-bedroom apartment there which is around 1300 square feet. One can’t expect to rent the corner-type for more than the 1200-square-foot type except expecting to buy it with a higher price.
When the building is suffering because of the size of the apartments or lack of closet space, the square footage consideration then becomes important.
Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.
{ 6 comments }
