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Sunday, April 23, 2017

It Cost Me How Much for that Square Foot?

Posted by Tim Stobbs on February 14, 2008

Long time readers might recall I did a post a while back on how much house do you really need. Well I have been thinking how much does it really cost to have a few extra square feet. So I started digging into costs.

First off I realized how building prices vary heavily depending on what you finish the house with and what features you want. I saw prices ranging from $60/sq foot for a house built using the owners labour and lots of recycled materials to over $200/sq foot for the high end homes with granite counter tops. Please note this doesn’t include the land cost. So for this exercise I just settled on using a nice round number of $100/sq foot.

Then I calculated the extra mortgage costs associated with that square foot. Assuming a 25 year mortgage at 5.5% paid monthly that $100 sq foot would cost you $83 in interest. So right now I’m up to a total of $183/sq foot.

After that we still have to heat that sq foot. So to be fair I just assumed a 25 year time frame like the mortgage using a energy efficient furnace and today’s natural gas prices (ie: I used my own house as a model). I came out with about $17/sq foot for heating.

Therefore in total an unused square foot in your home costs you about an extra $200 over a twenty five year life span. Please note I didn’t include any maintenance costs for that extra square foot, so it reality it would cost you more (Oh yes, you will also have a higher property tax rate as well).

So in my case I would estimate without the daycare in the house we could get by with about 300 sq feet less than we current have. So 300 sq ft x $200/sq foot = $60,000 over 25 years or $2400/year. In my case the daycare has to turn a profit of $200/month to offset the extra cost of just having a larger home. Now if you don’t have a side business all that unused space in your home is just eating up your hard earned money.

So next time you feel the need to get a larger home I highly suggest you first think that extra space in terms of cost. After all it’s a bit more eye opening to realize one little extra 10 foot by 10 foot room is going to set you back at least $20,000.

Comments

7 Responses to “It Cost Me How Much for that Square Foot?”
  1. Great post. I did a post a while back on the cost of building a house in NL. In the post, it was determined that it would cost $95/sq ft for the complete basics not including land or garage.

    We just finished building and after it was all said and done, it cost $110/sq ft not including land or garage (or mortgage interest).

  2. Derek says:

    You’re forgetting the added equity you’ll have in the home; 300 sq ft. * $100 = $30k, plus 25 years of appreciation.

    Not that I disagree with the notion of buying only what is needed…in houses, or anything else for that matter.

  3. nobleea says:

    I see you’ve read Susanka’s Not So Big House. It’s actually a series of books now – there’s about seven of them. All very interesting and insightful.

    I have lots of friends who would not dare buying a house smaller than 1500 sq ft, even though they are childless couples. Rooms that can serve two purposes are a foreign concept.

    At the moment, my fiance and I are shopping for our first house. We’ve both agreed that location is the most important, and if an 800 sqft house is in the ideal location, we’ll take it. It will be expanded as our needs grow. The house will grow with us, rather than us growing in to the house.

  4. Nob, you are smarter than most first time home buyers. Location is DEFINITELY the most important factor. If you want to be really savvy, buy a house that needs a little work in a nice, appreciating neighborhood.

  5. telly says:

    MDJ, you’re right but I find sometimes people can get caught up in paying for an appreciating neighbourhood. While some neighbourhoods are well established, some others seem like good neighbourhooods because they’re trendy….but trends change.

    When we purchased our house we were pretty much looking for cheap 1st and foremost (with a good layout). It was supposed to be a starter home and so we didn’t much care that it was in an ok neighbourhood (some might even call it the hood ;) ). After a few years we discovered that our house is in an extremely convenient location so it works well for us but in truth it was luck. My brother-in-law bought a house in a “good” neighbourhood and now he and his fiance have decided they really don’t like it because it’s in an inconvienent location.

    No one knows when they might sell and if their neighbourhood will still be an appreciating one by the time they do sell so I wouldn’t sink too much for the “potential” gains which may not materialize.

  6. nobleea says:

    you’d be surprised at how little research buyers do on upcoming/planned developments headed for an area. some developments, if done right, can add immense value to surrounding homes.

    when i mentioned location will be first and foremost, i was referring to minimal commute and walking distance to edmonton’s excellent river valley. there are many neighbourhoods that fit this description, some cost $1million to buy in, others, less than $300K. Picking one that is on an uptrend (new teardown houses, architectural renovations on some streets, etc) could be a wise long term investment.

    I’ve always considered there two be three variables in a house price: location, size, and finish. Together, they’re a constant, but you can increase one to decrease another. We’re willing to sacrifice size and finish to get excellent location. I have friends who sacrificed location (they’re 45 min drive out of town) to get a monstrous house with decadent finishes. Some families with young kids might be willing to sacrifice finish in order to get enough space and still be located near a great school and park.

    I’m sure it’s different for each person, but I’ve found that when the market turns south, housing the furthest from the city goes down fastest and takes the longest to recover.

  7. Canadian Dream says:

    Nobleea,

    I think you hit on the head with your variables of location, size, and finish. My current house didn’t do so well in finish, but was a good value for location and size.

    Derek,

    True you do gain a bit of value over a long haul, but that is assuming you pull out of a house prior to it dropping in value if the neighbourhood starts to go downhill. On the other hand prices can also spike up in the short term. That part is hard to put a value on.

    Tim

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