When do you tear down vs Renovate in a house currently rentable?

Question

Here is the situation, Have an 1800's ballon construction 3/1 single family , 1.5 story unit. The unit is rented consistently and is functional but also needs upgrades, new siding (has 2 layers), Some rooms could benefit from re-wiring and more insulation, Painting is always an issue as it is not plaster but older thin wallboard. kitchen is fairly new, bathroom could use upgrade, upstairs bedrooms have some pitched ceilings but I don't think based on the foundation/construction it is a candidate for a full second story and it had a new roof a few years ago. It is always going to be a little funky upstairs. Replacement if the town would go for it would be a duplex with two 2/1s. I think I would have to drill an additional well too. What makes you decide a property is no longer worth fixing and to replace? Haven't got siding estimates yet. To upgrade completely ballpark I think 80-100k but I could just keep slowly chipping at it. Guess probably 550,000 for a tear down and new build depending on what's required and maybe a year of down time. Currently gets 2k in rent. Two 2/1s rent would be close to double that. Another 3/1 in better condition, all full height rooms maybe 2500 - 3 k. Just looking for thoughts as we consider the re-siding.

Matthew Paul · Answer

If its constantly rented , then keep renting it , keep the cash rolling in . Do the repairs nessary to keep it going . There will be a point in time when it is beneficial to tear it down and go better . When is that ?  You will figure that out , but now is a bit risky .  I had a similar situation , I kept the house clean , neat and liveable for 10 years , when the last tenant moved out , full gut down to the studs rehab , everything new .  Those 10 years of rent more than paid for the improvements

Lynn McGeein · Answer

@Colleen F. If the surrounding area has a lot of tear down and rebuild or there’s no inexpensive way to renovate to make it more functional, likely not worth sinking much more money into it if most future buyers will just prefer to tear it down.  Would it be too expensive to formulate potential future plan for entire parcel, then determine if that small part of it where house is now can be built now, potentially making the whole thing more valuable if/when time comes to sell, partner with someone or develop yourself?

Colleen F. · Answer

@Bill Brandt It is a thought the house could sell for 300,000 to 350,000 and rents for 2050 but it is so integral to the property that i would hesitate to do that as a sale might devalue eventual value of the parcel.

House doesn't border a street. The apartments are in the middle of a private U shaped driveway coming from the street and the house is outside the driveway on the bottom of the U next to barn. Could do access ROW but there are about 2 acres of land behind the house which abuts another property not a street so parceling it out wouldn't be the best option for the land. In the end It is likely the whole property could eventually go to a developer but the apartments are a historic granite building so they would have to stay and building out would be in the house and barn area and the acres behind (currently treed so little maintenance).  I don't think the lawn guy is going to charge much less for just mowing the apartments and not the house.

Bill B. · Answer

If the property is worth more with the house then without. Wouldn’t you be better off selling the property instead of tearing it down? You’re going to start “in the hole” compared to just buying an empty lot if you really want to build.

If it’s worth more without the house I’d either sell as is to a builder or tear it down and then sell the empty lot once the ROE drops below 8-10%. (It doesn’t matter if it’s rentable if the return is near zero. (Imagine a property you could sell for $500k but you can rent for $1.500/mo. That’s less than 4% before insurance, taxes, repairs, vacancy and so on.

Shawn Parsh · Answer

I am with Jacob on this one I would need to know the numbers to make a decision. From my perspective, with the information I have, I would keep renting it like Matthew said. Someone would have a hard time convincing me that paying to tear it down and build something new would make sense. From my perspective I would collect rent as long as I can and when that doesn't make sense anymore I would sooner sell it then pay to tear it down.

Even if you have to sell it at a discounted price because of the condition you will still get something. You can always find another piece of property to build another building. Especially if you think you would have to pay for another well. You never know what that will cost until they do it.

Jacob Sherman · Answer

What is it currently worth today ? How much are you into it ?

Dave Spooner · Answer

Fully agree with this!

Colleen F. · Answer

Account Closed   Costs will play a role and I think the next couple months in an election year will give an idea where those will head. Just wondering what people would consider the tipping point. I keep thinking the more regulation the more expensive it will get.  I have good tenants now but when they go I want to have a game plan.

Colleen F. · Answer

@Lynn McGeein there are a fair number of tear downs in town. I think I have to determine what the town is doing in the area. A duplex would align with future possible uses . Not sure about single family.  I think access to the back land could be through this house if someone wanted to do single families on the back area.  All this makes me think I should just ride it out longer. Maybe have a contractor advise what is possible with the existing structure before deciding.

Colleen F. · Answer

@Shawn Parsh  The only reason to throw out a tear down is this house is a little different and very old construction however, it is in a county with few year round rentals and good schools people rent it and make it work. It has something like tar in the foundation and crawl space so making it a full second story not sure I could get that permitted.  As a 1.5 story it has 1 conventional bedroom downstairs and a couple of weird shaped bedrooms and a bath upstairs.  And since apartments are on the same parcel it doesn't fit as well with the property as say a duplex would.  Sounds like you are in the reno as I go camp.

When do you tear down vs Renovate in a house currently rentable?

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