Buying a “knockdown “ property

16 Replies

I’m a new wholesaler and I’ve seen properties that I believe would be better knocked down and rebuilt. My problem is I have no idea how much it cost to build a home from the foundation or how to estimate to cost. Any suggestions? Is there a formula? Thank you

There is no formula for building homes.. Maybe the house itself would be the easiest based on a rough $$ sqft. I would recommend as a new wholesaler to stay away from projects like this. With your lack of experience you can get an investor/builder in trouble..

I am not a wholesaler. I don't understand why the cost to build is particularly useful or relevant. The cost will be directly related to the size of the new house and planned finishes. What you are proposing to market is land or building sites. The value would be dependent on lot size, cost to demo and clearing, zoning and availability of utilities. In my area, once utilities are provided to a lot, there is no hookup/installation cost to re-establish service after demo. Depending on the market lots may sell at up to 1/4 the value of the property including a new house when built. However, there is a lot of risk and holding costs. The lots I have bought and sold sell for much less than that in the midwest.
Originally posted by @Account Closed :
Originally posted by @Hai Loc:

There is no formula for building homes.. Maybe the house itself would be the easiest based on a rough $$ sqft. I would recommend as a new wholesaler to stay away from projects like this. With your lack of experience you can get an investor/builder in trouble..

 Are you sure?   I bet a contractor could look at a parcel of vacant land and tell you  how much it would cost to build whatever.  A gas station , bank, quad, dance club.

I bet you the contractor doesn't have a formula to do it.. That was her question.. Every lot is different, the property may be fueled by natural gas, propane, oil or even electric heat. The property might be on a slab and you want to build a basement but there is bed rock underneath, is there a formula for that? What if the soil has radon is there a formula to remove it?

@Tanya Randall I am a new member and still learning through I’m thinking the same thing but for any chances I have a question is there anyone would cheap in to invest buying this kind of property? And putting all the money together and remodeled the lot and adding another bedroom and garage and sell the property triple to make profits? Is anyone do that here? Thanks Dovie

@Tanya Randall

Hi Tanya as most have hinted at, be careful with 'rules of thumb' and drawing conclusions from anecdotal data points.  They can be a good starting point and are usually better than nothing, but that's not setting the bar high.

That said, here's some!

A major supplier here in the midwest called Menards markets complete house packages (materials only).  These typically include everything except concrete work, and the actual trades (electrical, plumbing, HVAC).  So, from my experience with new and complete trades-work, I'd budget at least $9k for each building trade.  Of course this will all depend on where you are, what house you pick, etc.

So a 'starter' type Menards kit might run for $90,000 or so, and might be a cutesy little 1200 sq ft house with middle of the road finishes.  They also will market something in the 110,000 range.

I'd estimate that there's at least 10-20 percent margin there (built into price) compared to if you were the prime builder and/or managing yourself, and buying the materials yourself.

So, if my math is right, you'd be at about $117,000 in just for materials, plus a likely concrete pour for a driveway.

PLUS, of course, labor.  Hard to say here but I'd bet you'd at a minimum be at another 30,000 cost in labor which of course depends heavily on your location and labor market. 

And a range estimate of what the demo folks around here may get to demo a house would be in the 12k - 30k range for complete haul off type knock down services (they are basically leaving a hole where the house sat).

Bear in mind that for stuff like this there's a big swing in materials and labor prices to do this work, too.  I'd estimate as much as 40% higher now than it was 3-5 years ago. 

For basic unskilled labor lately I was paying $15/hr whereas I was at $10-12/hr about 3 years ago and sure, at times struggled to find resources - things have tightened up.

ask a local insurance agent how much they insure houses for per sq ft.   For example, in my area it is $300-$350 a square foot for a middle class home.   $500 a square foot for high end homes.    That is a decent estimate, they use expensive computer programs and databases to make that estimate, but you can get the "final" number for free just with an insurance quote.

It is pretty easy.  If you can buy the property for cheaper than plots of land are selling for, its probably worth wholesaling.  Otherwise, I would not knock the house down.  

The way I do it as a wholesaler is first determining whether or not the house really needs to be knocked down. To someone who's inexperienced, it would seem to be the case. But unless you walk the property on the inside and look at the beams, floor joists, subflooring Etc with an experienced I ( I also rehab and have been doing so for the last 18 years) to determine whether or not it's still in good condition, you will have a hard time telling whether or not a property needs to be knocked down. I would never tell anyone to walk away from a project but I would suggest that you either bring in an experienced contractor or partner with someone who knows what they're doing. And if you're new to wholesaling in general, an experienced wholesaler as a partner is your best bet in my opinion. Good luck.

A couple things to be sure to keep in mind if you are looking to knock down an existing property.  Be sure to get it tested for Asbestos, new EPA regulations require testing prior demolition and fines are pretty serious.  Also, the most critical thing is to determine if you can buy an existing home in the immediate neighborhood for cheaper than you can build a new home.  You need to be able to buy the lot/demo the existing and build a new home for cheaper than you can buy a neighboring property. A talk with a local builder and they will be able to determine an estimated price per square foot.   Your scenario typically works the best in A-Class neighborhoods or prime locations.