Denver (What Would You Do?)

[Matthew Schroeder]

Dear Denver BP Community,

What would you do with this Denver property?

We own a property in the Clayton neighborhood in Northeast Denver, about 10 blocks north of the Denver Zoo (36th & Cook).  It is a decent sized rectangular lot (typical of the neighborhood) measuring 6,250 sf, but the property is tiny with only 1 bed & 1 bath measuring all of 521 sf.  It is zoned USU.  

We bought it in 2011 as an REO for ~ $40k, and if we decided to sell it (which we are not considering at the moment), we should be able to get north of $100k. We have a tenant in there paying $695/month, which is probably under market, but it is up from the $550/month we were charging back in 2011.

The bungalow is situated toward the front of the lot, so there is a very large back yard.  Additionally, the bungalow is offset to one side of the lot (i.e. not in the center), so if we want to do an addition, we probably could do that.  In short, we are in a very favorable (and unexpected) situation where we have a lot of options!

Our options include (i) continue the status quo and rent, (ii) sell the property, (iii) do an addition to increase the number of bedrooms & square footage, or (iv) scrape and building a new property.

What do you view as the "highest & best" use ... what would you do?

[Bill S.]

@Matthew Schroeder do the economic analysis. Since the zoning is USU it means you can only put a single family home on the property. As for adding on, does the addition add more value to the property than the cost of constructing the addition? If you scrape and build will it sell for more than the lost value and the cost of construction? To get an idea of this without going through the brain damage of this exercise, are there others doing this in the area? If not, there is no money in it. If so, you can back into rough figures by reverse evaluation of those that you can get before and after information.

You might try driving the area and seeing what is going on there. 

For rough evaluation on new construction, if your lot is worth $100K you would need to be able to build and sell a $500K home. If there are no solds withing 0.25 miles for $500K new construction is not likely to work.