Here’s a handy method to get a good idea, at a glance, if a property is worth a closer look…

This is called the “price per square foot” method you can use to quickly evaluate a deal:

Take the price of a house
Divide it by it’s square footage

The number you get will be a benchmark by which to evaluate that property by. For example, if most the houses in a certain square mile are worth about $150/sf, then if you find a deal that is $120/sf then you may want to look into it. Likewise, and deal that is $150/sf or over, you can pass on right away.

Some things to keep in mind:
Attics and basements are usually valued lower–so if a house is 2,500sf but half of that is unfinished basement, the price per square foot will be lower–maybe that’s why it’s $120/sf instead of $150/sf.

Upgrades and damage may not be taken into account.

The property location will play a big role in the price.

Verify the square footage–sometimes garages are included, sometimes they aren’t. Sometimes it’s just the “living” areas.

The amount of land the property sits on makes a difference.

Can you rent part of it out? Rental income adds value to a property.

Know your neighborhood
The important thing to get to know one area very well, and then branch out from there. Start with the neighborhood you live in. In a future email I’ll talk about having a “farm area” that you’ll get to know really well.

Getting started
Your local county records office (if they have it online that’s even better) and zillow.com are two places to start to get a feel for the price per square foot of a particular area. The numbers on these web sites are not always completely accurate, but they’re great for getting an overall average price per square foot on any given neighborhood.

Keep in mind that the price per square foot method is just a quick look at any property. Use it just as a way to reject obviously bad deals or as a green light to look into a deal more closely.