Price per square meter is a crucial factor when evaluating real estate investments.
We recently invested in a property that had an unbelievably low price per square meter. You may wonder, what exactly does "price per square meter" mean? Well, it's a universally used metric, except in the United States, where the price per square foot is commonly used instead. The conversion factor is quite simple: approximately one square meter equals ten square feet, or precisely 10.764 square feet.
But why is price per square meter so important? It's the simplest way to compare properties in a specific market and determine their underlying value. Comparing the price per square meter allows you to make an apples-to-apples comparison across different locations and ascertain the property's worth.
The Significance of Location
As the saying goes, "location, location, location" is the key in real estate. Trust me, I've tried to challenge this theory (I'll share that story another time!), but it is undeniably true. The value of a property is greatly influenced by its location. When analyzing investment real estate, considering the price per square meter helps you categorize the spectrum of property prices within a specific location. All major cities have a price range, with a lower and upper end.
International Comparison
Price per square meter is not only useful for comparing properties within a single city but also for comparing cities internationally. This metric is especially valuable when shopping for apartments or real estate with consistent layouts. You can easily compare properties that have similar floor plans, are located in the same area, and offer similar amenities. In this scenario, the building costs are usually comparable as well, as experienced builders know how to construct efficiently and economically at scale.
Apartments with similar layouts and amenities can be compared effectively using price per square meter.
Assessing Land Value and Building Costs
The value per square meter becomes even more valuable when you are familiar with the actual building costs and land values in a market. Let's say you already know that land values are $500 per square meter and building costs are $2,500 per square meter. In this case, you can estimate that the total value of a single-story home would be approximately $3,000 per square meter. While there are numerous variables to consider, this quick mental math enables investors to efficiently evaluate multiple real estate opportunities and identify potential outliers.
Deep Value: A Hidden Gem in Real Estate
At Explorer Equity Group, we utilize this precise method to identify attractive real estate investments. Recently, we acquired a property with an astonishingly low price per square meter. Although I can't disclose the exact figure here, I can assure you that it was significantly lower than the lowest-priced city on the chart above (Detroit), and Denver was priced at over ten times what we paid.
However, it's important to note that purchasing cheap property doesn't guarantee a great deal. Sometimes, real estate is inexpensive for valid reasons, such as low rental rates or unique circumstances that enable favorable negotiations. To uncover real estate with deep value, you often need to search for properties that are not widely advertised or even listed at all. The best investment opportunities are frequently the most challenging to discover.
Your Real Estate Journey Starts Here
Are you interested in exploring investment opportunities in South America? We are currently working on projects that offer exceptional returns, diversification, and tangible collateral. Take the first step towards discovering hidden real estate gems by reaching out to us. Let's embark on this journey together!
To be continued...
