Should I Rehab or Build?

5 Replies

I'm relatively new and am interested in accumulating rental properties in Central NJ.    I'm currently looking at a house in Raritan, that is in very bad shape.   It is a small property, about 1,100 sq feet, built in the 1940s.    Very poorly designed compared to today's standards.       Other than, some new windows and staircase bannister, no upgrades have been done since the 1940.    No joke.    To boot, basement has a lot of water damage.      At what point do you say that a property can't be rehabbed and you're  really better off demolishing it, then starting over with new construction?    Property is in a decent neighborhood, in a very good school district.      Number one, as a newbie, should I call it a day and move on to other opportunities?   Number two, would you recommend building from scratch or going modular?   Lastly, any new home builders and/or modular home builders in NJ who would be interested in a project like this?     Thanks!

@Daniel J. Gibson unless you are very game for a challenge then for your first deal I wouldnt take on the risk and the headache of new construction or such a large rehab. Too many things can go wrong when you know what you are doing and in your case you can multiply that 10 times since your experience level is very low. Pick properties that need medium to minor work at first then work yourself up to larger and potentially more profitable ones.

To boot with, this property also has water issues.  Rehab and that too of a property untouched since 1940 (which will be out of code for almost everything) is likely going to bring many surprises.

If finances allow and numbers make sense then new build can get larger ($) returns.  I like modular home because of relatively shorter and firmer timeline and fixed budget where contractors don’t hold you for ransom but this works only if you know the design that is going to work.  

Good Luck!

Nobody can tell you if the property is worth the investment without more detail. However, we can tell you that it doesn't sound like something a beginner should take on. You would determine a worthy investment by crunching numbers and I don't see any evidence that you know how to do that or how to find trust-worthy contractors to do it for you.

Pass. Do some more reading, studying, and networking with other investors.

Originally posted by @Daniel J. Gibson :

At what point do you say that a property can't be rehabbed and you're  really better off demolishing it, then starting over with new construction?    

Welcome to BP! 

The numbers should be able to help you answer that question! If you can, share some numbers with us (purchase price, renovation cost vs new build cost, ARV of rehabbed properties vs new builds), that way we will be able to give you a better idea whether its a good deal or not. If it is a good deal, you can always pass it along to someone and make some money from it, or partner with someone who can get it done.

Try partnering up with someone, a big rehab on your first deal and make or break you. There are many unknowns which can ruin your deal. Best of luck.