Cost Per Square Foot
"So, what's it cost you to build per square foot?"
If I had a dollar for every time I've been asked this question then we wouldn't have to build anymore! Its easily the most common question that we receive so I figured it was about time I just answered it once and for all with the only correct answer there is:
It depends!
There's no uniform cost per square foot for a new construction home.
There's no uniform cost per square foot for a rehab single family rehab.
There's no uniform cost per square foot for a multifamily conversion.
There's no uniform cost per square foot for a mixed use new construction.
I repeat -- It depends!
There are too many variables that differ from project to project to be able to create a uniform "build price per sqft". We've found that the biggest "budget busters" for rehabs are exterior work and basement work, so let's discuss an example of basement differentials to really drive this point home. Let's assume you have two 1,500 sqft houses directly next to eachother. Both houses are single families that suffered 2nd floor fire damage with unfinished basements. Should be pretty similar right? Let's take a look . . .
123 Main St has a brand new basement pad and the foundation walls are parged and the ceiling height is 7.5'. The joists are all new because it turns out the old owner did a rehab in 1995 and ledgered the joists a foot higher. That's why there's such great height. It's also bone dry down there, after some investigating you realize that the old owner put in a perimeter drain connecting to a sump pump.
125 Main St has a really chipped up stone foundation and the pad is an old cracked rat slab, poured right on top of the footer and the height is 6.5'. It smells musty and you notice the concrete is still wet from the rain last night.
In order to get 125 Main Street up to the level of 123 Main Street you'll have to demo the existing concrete pad, dig the basement 2', underpin the foundation walls, parge the existing walls, add a perimeter drain and connect it to the sump pump. Finally, you'll have to install a new pad the proper way that the new code requires (vapor barrier, 4" crushed stone, 4" concrete). Now the basement in both houses will match! ....But it just cost you around $40k to get it there ...... That $40k averaged into the size of the house is an extra $27 per sqft! This is before you've picked out any finish material or bid any subs or anything. To the untrained eye those two rehabs seem fairly similar, but now we know the truth -- they are very different!
There are too many variables that differ between any two jobs (especially in a city like Philadelphia) to be able to provide a uniform 'cost per sqft' construction number. The only way to give an accurate estimate is to provide an itemized bid. And even then, it's still an estimate! The construction industry is a living, breathing organism that's constantly changing. The price of lumber could shift between bidding and building. The labor market could shift between bidding and building. In today's environment even capital markets could shift heavily between bidding and building to the point where maybe you need to adjust your scope of work to accommodating a higher/lower cost of capital! This is only naming a few of many variables, but to keep a long story short -- every job is different, so make sure you treat each new project with the respect that it requires. Don't skip steps. Bid the scope of work/hire someone that is prepared to provide an itemized bid for the current scope of work. Then be prepared to pivot when you encounter obstacles along the way.
It's worth mentioning, we use Price per sqft estimates when creating our 'back of napkin' pro forma with initial analysis on any deal to see if it works. When we do that we'll keep that number fluid. Rather than treating that as a fixed cost, we'll analyze a deal with a "ceiling" and a "floor" construction price. If the deal works with both numbers in place then we'll move on to building an itemized budget. When we were first starting the business and had no clue how to build a budget we would use extremely conservative construction estimates and then we would put the property under contract with a due diligence period so we could back out without losing our deposit. During the due diligence period, we would sit down with a licensed professional who would help us with our budget. We were also taking on projects with less variables - for instance, single family full gut renovations with no serious structural work.