Determining Property's True Value: Square Foot Price and Front Foot Price
What is the square foot price?
Yet another way to determine price when buying multi-unit residential, office, and industrial buildings is to check out the square foot price. For example, if the property in the area is selling for $200 a square foot and your building has 10,000 square feet, the price might be $2,000,000. As with the GIM, you should check with agents and other investors for what the current square foot price happens to be for this type of property in your area. Yet another measurement is the rental rate as determined by square footage. This is especially helpful in terms of office buildings. For example, one building might produce monthly rental income of $5 a square foot while another might produce income of $15 a square foot. It does not take a genius to see that the second building should be worth three times as such as the first, on a square footage basis.
What is the front foot price?
Sometimes when evaluating commercial property, particularly when it is located in a mall or on a heavily trafficked street, the price will most easily be determined by the front foot. This refers to the number of linear feet that the property has on the street (or mall walkway). It only stands to reason, since the ability of the property to generate income for the tenant may be determined, to a large degree, by the number of people who either walk or drive by. The more front footage, the more valued the property. For example, if the property has 100 front feet and the value per front foot is $15,000, the property may be worth $1,500,000. Note: The cost per front foot varies enormously, depending on the location. On a side street it could be a quarter of the cost of being on a main street.
In addition, many businesses no longer rely on frontage to appeal to customers. Rather, signage, online advertising, even word of mouth can make an apparently poor location quite valuable. Further, front foot price is usually derived from rent. The property, for example, rents out for so much a front foot. When this is the case, annualizing the rents and then using a GIM can often work more effectively. To find the front foot value of a property, you should check with agents and other investors who deal in that type of property.
More Ways to Figure Rent
There other ways to figure how much to charge for rent, especially home rentals. Usually, landlords will charge between 0.8% and 1.1% of the house’s value as for rent. It used to be about $1.00 per square foot, for example a 1,100 square foot house would rent for $1,100 per month.
But this has changed since this housing crises and mortgage crash of 2008. As housing prices have increased dramatically in many parts of the country, rents have increased by as much as 100% in cities like Denver, Seattle and the San Francisco area.
This is all about supply and demand. As more people move into these cities, the supply of homes for sale and rent fall, prices go up. After the foreclosures of 2008-2010, corporations bought up many of these homes. Long gone are the days of the local landlord, and now most, but not all, rental homes are rented by huge corporations.
As for business rents, they are also getting out of control for many cities. This is causing companies to move out or just close down. As development continues in these hot market cities, small businesses are being forced to leave due to the land being sold and or rents rising just too high.
Are high Rents bad for the Economy
There are several arguments that state that high rents are hurting a city’s economy. Landlords and corporations might gain from high rents, but as for a city, high rents can become a problem. High rents cause the homeless situation to become worse. It also causes people to move out of the city.
The homeless problem can make a city become unattractive and also cause businesses to move out. As rents go up double digit percentages and wages barely rise, the problem gets worse and worse each year.
Rents can be a double edge sword, do landlords want a good tenant or 10 people living in their home. Do landlords want businesses that might leave in a year.