New Construction / Should we tear down and rebuild?

3 Replies

Good evening - 

I live in an older ranch style home in the Memorial Villages area of Houston, Texas.  Home / property values in this area are ridiculous.  The lot behind me just sold for 1.4mm (25k sq ft).  Four more houses ON MY STREET are about to be leveled and new homes are going up.  My question is this ... My lot is worth roughly 1.1 million.  It's smaller than the one behind me.  My house is 60 years old and probably not worth renovating.  Should I 1) sell the house for 1.4mm or 2) tear down and rebuild.  Assuming I can build for $200 a foot for a nice custom home, I could turn a really nice profit and do it all over again. 

We have been in the current house for 5 years.  If I tear down and rebuild, does the 2 year occupancy period start over after completion for tax purposes?  Stated another way, to get the favorable tax treatment for gains on your homestead if you live there for 2 of the last 5 years, would I be ok?

the 2 year rule will NOT restart, as your address stays the same, if i understand your post right.

So your thinking of spending $600k, ( for 3000 sf), a year building out a new home, plus demo costs, hold costs, alternative living arangements etc, plus the risk of where the market will be 18 months from now?

What will that new house sell for?

I would be on the side of booking the gains, selling now ,but are you moving out of the area or do you have to buy something else in the area?

Forget about the money for a second and ask, "Where do I want to live?"

Do you like living at that address? Does your family have roots in the neighborhood or in the local school? If so, then you should probably build your dream home.

However, it sounds like you're already planning to move. If you're planning to move out of that neighborhood in the next couple of years anyway, I say just take the money and run.

Originally posted by @Will G. :

So your thinking of spending $600k, ( for 3000 sf), a year building out a new home, plus demo costs, hold costs, alternative living arangements etc, plus the risk of where the market will be 18 months from now?

I would be on the side of booking the gains, selling now ,but are you moving out of the area or do you have to buy something else in the area?

 This all the way! So much work and hassle and uncertainty for how much gain? When you factor all the above in you may not make any more anyway. Have you ever built a new construction home in any capacity? It's not as easy as it seems even as a homeowner simply hiring it out. If you're experienced, please forgive my assumption, but I can tell you that I wouldn't want to be one of how many new construction homes on the market in your neighborhood 18 months from now. I'm pretty confident we'll have a solid 2018 but beyond that, who knows. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here