Demolish Home on Two Lots?

2 Replies

Potential deal is an SFR that was built over top the border of two adjacent lots (original builder owned both). Assuming I can acquire both lots, here are the options I see along with ballpark numbers and time frames. Purchase price is the same under all scenarios. Assume all options net at least 50k.

1:

Rehab - 100k

Sell house and both lots together - 300k

Gross 200k less purchase price

Timeframe - 1 year 

Risks - Over budget reno (house is in pretty poor shape)

2:

Demolish existing house - 20k

Sell lots individually @ 90k each - 180k

Gross 160k less purchase price

Timeframe - 6 months

Risks - Difficulty selling vacant land (note - lot 3 doors down sold 6 months ago for 125k)

3:

Demolish existing house - 20k

Build spec on both lots @ 175k each - $350k

Sell individually @ 300k - 600k

Gross 230k less purchase price

Timeframe - 24 months

Risks - Larger holding costs, over budget construction

Option number 2 is my default preference in that it's the most simple and in my mind least risky in terms of catastrophic failure.  While it gives the smallest return, it's also the fastest to reach resolution.  Has anyone had successful deals where the best option was to tear down the existing property and sell the cleared lot(s)? 

How are you estimating your timeframe because it seems pretty long for all three scenarios. Also it doesn't look like you're factoring holding cost into your calculations 

Richard,

Two good points. I'm deliberately conservative on the timelines and counting until the property would be sold not just rehabed or built. Holding costs would be minimal given that this would be an all cash transaction.

Also to give further input, this house could rent for about $1,500 after the option 1 rehab. 

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