Determining offer on possible tear down wholesale

7 Replies

Hey everyone. 

I've got a good lead on a property in a nice suburb of St. Louis. Recently a lot of home owners are tearing down their 75 year old homes and building huge houses. Taking their value from ~250k to anywhere from 550-700k. 

The seller on this lead told me she thinks the place would be a good candidate for a tear down, or just rehabbed and rented out again. So I'm caught on how to value it. I've spoken to some people and found that $220/sqft is about min to build in this area, which meams i cant buy the house for its cirrent value of ~220k and wholesale for a profit. 

So my question is how would you approach the seller with price? Determine the ARV with rehab, and do a normal wholesale?

Determine the value of the land and tell her it'll be a tear down so I can only offer the value of the land?

Something else? 

Also, how do you value the price of land when there really aren't empty lots in this area? And tax record valuations are nowhere near accurate in StL county. 

Any help would be appreciated. 

Cheers!

Originally posted by @Wayne Brooks :

Find the sales prices of those houses that were bought for tear down and rebuild.

Thank you Wayne. While that would obviously be the easiest. Is there a way to find out which ones were bought, torn down, and resold without doing a deep dive into county building permits? 

Also some of these homes are just home owners who tore it down and had it rebuilt themselves to sell or live in. So no record of purchase and then resell a few months later. 

If your county data isn’t helping approach others doing the same, ask them how they are valuing it. 220 per sqft say 2000sqft is at about 440,000 so is the land 100-200k? An area of town in my area seeing the same kind of moves those would almost be the same numbers I’d value the property with but folks around here revere county data as the final word

Drive the neighborhood. You'll be able to tell which houses are 75 years old and which were built in the last 10 years. That'll give you a list of addresses to narrow your search for sales, building permits, etc. If you don't get any hits on previous sales, check the assessed value as well. If the existing owner tore down to rebuild and the value went from $220k up to $500-700k there should be a corresponding jump upwards in the assessed value and property tax owed within a couple years of the rebuild. You'll also be able to see the split between the value in the land and the building/improvements which might help. If you end up driving around and see other projects under construction, contact the builder and see if they can help you assess the pre-teardown value as they've probably done others nearby.

Hey Max, thanks. That's a good ideal. I'll have to drive more of the neighborhood tonight.

Tearing down a house at 220k and having a new larger house built for 150 to 200 per sq ft just does not make financial sense if its Arv is 500 to 550 k. Even a 1500 sqft house will bring total costs close to 500k.