real estate investing

The True Cost Of Homebuilding - It's Not What You Think

The True Cost of Homebuilding.png

The question we get asked most often related to our development projects is “How much does it cost to build per square foot”. This is a tough question because if we’re being frank, the answer is $100-$400 per square foot. 

We never actually say this, because:

  1. It’s not helpful for anyone

  2. We would sound like jerks

The reason most people would like to know the cost per square foot is because it’s always fun to do a “back of the napkin” analysis, where you plug in the cost of a property, the cost to build based on house size and SF price, and boom! There’s your profit. 

Maybe we’re being a wee bit facetious here, but it’s not far off.

The answer we actually give is “it depends.” And boy, does it depend.

So here are a few things that an investor needs to consider before plugging in a square foot build cost.

  1. Are you hiring a builder or are YOU the builder? And if you’re the builder, what value are you adding for your time and energy?

  2. The size of property. All things being equal, a 3000 SF home will have a lower per/SF cost than a 2000 SF home because of certain fixed cost.

  3. How many units are you building? This is similar to point 2. 10 units should have lower per unit costs than 2 units.

  4. What’s your relationship with trades and suppliers? 

  5. What are labour and material costs in the city you’re building in?

  6. What is the quality of the build? There are usually varying degrees of quality depending on who your target market is.

  7. What season are you building in? Winter construction will cost more.

  8. And are you just concerned about “hard costs” (i.e. cost of materials and labour for construction), or are you considering “soft costs” before construction begins (i.e. planners, surveyors, house designer/architect, application fees, parkland fees, demolition, legal, engineering, development charges, building permits, and additional miscellaneous fees.

To give you an idea of these “soft costs”, here are some rough numbers for our recent Semi detached development in St.Catharines with legal second suites (4 units in total).

  • Planner: $10,000 (Typically $5,000-$7,000)

  • Surveyor: $6,000

  • House Designer - Stage 1: $2,000 (Basic Layout and Elevations)

  • Application Fees (Lot severance): $11,000 (Typically $3,000-$5,000)

  • Parkland Dedication: $10,000 (5% of New Lot Value)

  • Demolition: $5,000

  • Legal: $2,000

  • Engineer: $5,000

  • House Designer - Stage 2: $5,000

  • Development Charges: $15,000 (this can vary wildly depending on the city)

  • Building Permit Fees: $4,000 (Based on Sq Ft)

The numbers for your potential project will definitely be different.

So there you have it. The right answer to what the SF price is it depends, and it would be best for any serious investor to do an analysis on all the items mentioned above before trying to determine actual costs to build a home.

The purpose is not to scare you away from development, but rather to encourage you to be realistic. 

The opportunities are out there, but you have to budget accordingly, and you can be on your way to being an infill developer and profiting!