How to Run the Numbers on Scrape & Rebuild

[Austin Faux]

How much does it cost to scrape a property and rebuild?  What would someone pay for a property if they plan on building a new home?  Do you just pull comps for the properties that you want to build?  In short how do you run the numbers to know if you should rehab or simply scrape and rebuild?

If it helps the property is in the Denver, Colorado area.

[J Scott]

The formula is the same whether you just plan to do paint and carpet or whether you plan to tear-down and rebuild...

Max Purchase Price = ARV - Rehab Costs - Fixed Costs - Desired Profits

where:

- Max Purchase Price is how much you can afford to pay for the property

- ARV is what the newly renovated/rebuilt home will sell for when complete

- Rehab Costs are the renovation/build costs for the project

- Fixed Costs are the purchase, holding and selling costs incurred throughout the project

- Desired Profit is how much you want to make on the deal

If you plan to tear-down and rebuild, you need to know how much it will cost to both tear-down and rebuild.  You'll also want to factor in architect fees, engineering costs, permit fees, planning/zoning issues, etc.

To determine if you should just rehab or should tear-down and rebuild, you should run the numbers for both scenarios and see which one results in the desirable outcome.

If you spend some time searching the site, there are many of great articles and posts related to this topic...