Rehabbing an Existing Property in a High Demand Area

[Felipe A.]

I am not sure what sub forum to direct this to - this one seemed like the best one.  I'm turning to the forum for some preliminary advice.

Here's the short version:

My father still lives in the house I grew up in.  It's in Florida and it's located in a very high demand/high value area.  The house is a 1920s house on a corner lot but hasn't had big improvements (outside of a minor reno on the kitchen) - there's no central AC, for example.  Great lot size and a house with "great bones" (the architecture of the house is very classic style of this area).  I'd say comparables with corner lots in this area (assuming major upgrades/reno has been done) are in the $1M+ but my father's house would probably only sell for 600-700k because of its condition.  The house is completely paid off.

IMO, he has 2 main options:

1) Make a major renovation (not a tear down but a full gutting) - somewhere in the $100-200k range, build an addition, add a pool, gut most of the inside, etc. and truly make it an amazing house that he could turn around and sell for $1-1.5m in the near future.  Or, if he chooses to, he can gift it or sell it to family at a discounted price.

2) Make a minor renovation ($40-50k) to make it very comfortable (central AC, new bathroom, etc.) and hold onto the asset and maybe down the road gift it or sell it to one of his children.

The house is his best asset and my attitude has always been #1.  It can be a pretty amazing house and can be used to host family from out of town, etc., and keep the house "in the family" for generations.

If #1 is the choice, where does one start?  I'm sure there are estate planning scenarios he has to account for and there are financial impacts for it as well - besides increased property taxes, what other financial implications are there?  I'm guessing he should take out a home equity line to finance the construction but i'd have to see if the interest deductions on his taxes would offset the increased property values and interest payments on the line.

Anyhow, I figured I'd turn the forum for some advice.  What other considerations should I take into account?

Thanks in advance!

[John Arendsen]

That makes two of us on the photos.