How Important Is Price Per Square Foot?

Why is price per square foot important when buying an investment property?

Well in all honesty, it isn’t. Most credible investors rarely consider using price per square foot as a true way to value property.

Don’t get me wrong, it can be very useful in comparing similar properties in similar areas. However, price per square foot can significantly vary dependant on the quality of the property, location and general supply and demand in the area.

You may have a building or block of flats in an area that has been built to a high quality / modern standard, and another building next door is outdated and in need of repair. Whilst both buildings may share the same postcode and unit size, there would be many other factors to consider when seeking its value.

For example, some flats in Cardiff city centre can consistently achieve 6 -7% yield while compared to others just around the corner only achieving 3 – 4%. Cardiff Bay can be another good example. With large urbanisation producing 1000’s of new units and increasing supply, therefore making it difficult to achieve any long-term rental yield.

I do go on about this to my clients. An investment property’s value generally is derived from two major triggers. These are;

• how much income the property generates (rent and yield)
• how much the property is going to increase in value over time (capital gain).

Which would you prefer?

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So why do investors use price per square foot? Well, it does have its merits. It can be a really helpful indicator of an ability to add value. In investment terms, if you can pick up a property that has a lower square foot value than its neighbouring properties, then there is a good chance for maturing its value.

Conclusion

Yes, price per square foot can be a great indicator for investment properties, but it is a small element to many calculating factors.

Data

The average price per square foot in Cardiff at the moment is £234, this is a 0.35% increase over the last 12 months.

Breaking this down;

• Flats – £225 average price per square foot – down 3% in the last 12 months.
• Terraced – £220 average price per square foot – up 2.27% in the last 12 months.
• Semi Detached – £245 average price per square foot – up 2.29% in the last 12 months.
• Detached – £274 average price per square foot – down 1.98% in the last 12 months.

The average price per square foot in Wales at the moment is £164, this is a 0.34% decrease over the last 12 months.

Breaking this down;

• Flats – £184 average price per square foot – down 3.66% in the last 12 months.
• Terraced – £134 average price per square foot – up 0.36% in the last 12 months.
• Semi Detached – £170 average price per square foot – up 1.58% in the last 12 months.
• Detached – £205 average price per square foot – up 1% in the last 12 months.

Interestingly, the average price of property in Cardiff is £217,133, this is a 4.12% increase over the last 12 months. However, the average price per square foot in Cardiff is £234 which is only a 0.35% increase over the last 12 months.

Get in touch if you are thinking of investing in Cardiff or the Vale. You can message me via the chat button, call me on 029 2168 0006 or visit my other website H&M Properties – www.handmproperties.co.uk
I can help in many ways including guiding you with finance.

For the latest data on Cardiff property market click here