Building new VS Rehabbing?

5 Replies

I posted this topic on the rehabbing forum, but it didn't seem to get much attention.

What I was wondering is as follows:

Say you find a piece of land with an older, smallish, run down house on it selling for a low price. To maximize profit, would it be ideal to rehab the existing house and fix it up or to tear down the house, excavate, and build a new bigger house from scratch? I know the latter is much more involved an more expensive, but when it comes to selling, could the newly built couse be more financially rewarding in the long run?

I'd like to know this because I am thinking of starting a project really soon.

Thanks,

Aaron

It would completely depend on the area and market that you are looking to do it in. Are all the houses in that area older, smaller, run down houses? If they are then building new is a mistake. If there is some new growth in the area but no vacant lots to build on, then what will your profit margin each way be?

I would say that normally rehabbing is the more cost effective and more profitable way to go, but again it depends on the area and the market.

I saw an investor by two older houses that were on extremely oversized lots. They were identical houses, probably about 2000 square feet a piece. They were located on the other side of a creek from a very elite country club subdivision. He could have rehabbed them and sold them for $175K each for a profit of 30-40K a piece, but he tore them down and built two HUGE houses- $750K+ range. He now lives in one, and I'm sure the other he cleared $150K or so.

I agree, it would depend on your margin. But If the house is completely trashed and not worth repair, you would essentially be purchasing the land and foundation (assuming that is good). Plus the cost of demolition and trash removal.

How much per square foot are you talking about to build? You save the cost of the foundation, but is that "worth" very much? I've seen some homes for 20K and under that would probably need a total gut or possibly a new build. What are the hidden costs with tearing down a property, even if you keep the foundation?

I agree with Ryan. I seen people tear down the whole house and just kept one wall for tax purposes. These were in highly desirable area in good neighborhoods and good school system.

Originally posted by Eric Wang:
I agree with Ryan. I seen people tear down the whole house and just kept one wall for tax purposes. These were in highly desirable area in good neighborhoods and good school system.


Eric, what are the tax advantages to keeping one wall?

Aaron,

The answer you need is nothing more than doing some simple math. Run the numbers both ways and figure it out. You asked if a new house is more financially rewarding? Run some comps.