Tearing down an old house for land value? (Lafayette, Baton Rouge, LA)

8 Replies

Guys,

I'm thinking a little out the box on this one. I have an old wood house on piers near my home that is slowly wilting away. It looks to my beginner eye that it is passed any point of return. It's just falling apart basically. Is it feasible to buy the property at a real low price, and put in the sweat equity to complete the tearing down of the home in order to gain the land value? Just curious to what thoughts are out there. 

Thanks

What is the land value? Depending on the area, it's 25%-30% of retail new construction sales price. 

So, if you can get it at a great price, why not? You can donate to the fire dept for practice and then you'll only have to carry off the debris. 

Or you can drive around and find out what builders are paying in your neighborhood, put a list together of potential builder/buyers and when you have the property under contract, get everyone's email/fax address and shoot out a sale flyer for the property.

Most builders have access to the type of demolition equipment that's necessary and can do the tear down much cheaper than you could.

It all depends on potential market value of the lot.

@Nick Deshotels  

What about utilities/ public water & sewer?

What about zoning?

Check with the zoning office, for their requirements and check with a contractor/demolition co. for demo costs.

recently there has been a boom of new building in my area and I do not even have to do the demo to get a new builder to buy the property, and at really good ROIs. I would do like @Michaela G.  said and see what the developers are paying and you may just be able to buy that for low enough and do a quick flip to a new builder without having to demo it. 

Find out what the zoning is, which will also give you details about the size of road frontage that's required for that zoning (maybe 50' width, maybe 100' width - can vary).

So, for example, if this is a property without road frontage and with just and access road, that might be an easement of another lot, that can make a difference.

Does the house have city water/sewer/septic tank/well water? ANd how does that compare to the other houses around.

Also, check for citations for disrepair of the house, if it's in such bad shape.

Some years ago I had a vacant lot under contract in West Oakland. Had a builder all lined up and there were 250K of penalties by code enforcement for not cleaning the lot. One of those $ 500/day. The lot wasn't worth that much. Instead of seeing the big picture of dropping the liens and getting the lot cleared up and built upon, they refused to budge and rather kept the 250K and growing on their receivable ledger. But every municipality is different, so, it's important to know what you're dealing with.

Most important part is knowing what new construction is selling for now in that area and then work it backwards

@Michaela G.  

Thanks for the help and advice. It's a somewhat rural highway out of city limits, so rebuild value is probably not substantial. I will dig deeper into land value in the area. I don't see a big desire to rebuild in this area, but I may be able to rent the land for mobile home use. If all the numbers make sense I don't mind holding onto the property/land, and just adding to my portfolio. Maybe use it as collateral later.

@Nick Deshotels  in my area I have done lots of tear downs but as the years past I found a company that moves houses and pays me for the house and hauls it away I just have to grade the lot prior to developing it.  

There is no exact formula for a tear down you just need make sure your rebuild will justify the cost.  In Raleigh we pay 175-250k for a tear down in the itb but the rebuild is justified at that price.  New construction can bring 250k+ a sqft.

Example of a move job the mover will give me 7k for a house that he will move to land out in the county rehab and sell for 150k good deal for him.  

For me it would cost 7-10 k to tear the average house here and about 4-6k to tear down and haul off the house. Plus 3k-4k to grade etc the lot so essential I break even with a clear lot to build. Sometimes there is enough remaining to cover permit cost. 

Just an idea to think on outside the box. I just happened to meet the guy and had no clue for year I bulldozed tons of houses I should got paid for.

If it is rural, then likely you could just go up the road and buy vacant land for the same price or less.

In appraising this is called highest and best use.  You tear the property down when its best use is worth more than the current value plus the cost demolition.  So if the property as it sits is worth $50,000 (building plus land) and the cost to tear it down is $10,000, it would be worth it to tear it down if it were worth $60,001 as a vacant lot.  Of course, this doesn't calculate any risk or entrepreneurial incentive.  

In rural areas, though, there is not enough demand for land for this to take place.  This normally happens in dense areas where new vacant lots can be sold for much more than the current value.  

@Clint Dorris  

Thanks for that information. My assumption is that the land may actually be more valuable on its own, but I don't know that just yet. I'll dig deeper into it. Thanks again.

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