Problem with rebuilding?

[Patrick Philip]

Some of the wholesale listings I get say possible tear down and rebuild. I would do this if the number worked, but my problem is that I would have to pay an architect thousands of dollars for a set of drawings before I even get started. Therefore, I might be thousands of dollars in the hole just to find out it doesn't make economic sense to rebuild.

Is there any way around this?

[Will Barnard]

It is less complicated than you are making it out to be. First, and assuming you are referring to single family homes, you simply need to know at what price per square foot you can build at. Once you know that, you simply need to know of find out how many square feet would be the max you can build on your lot size. For example, in my area, the city's new restrictions limit us builders to 45% of the lot size less 200 SF for the garage. So if I have a lot size of 7000 SF, I can build up to 2,950 SF (7000 X .45) - 200 = 2,950.

So if you know you can build at say $125 per SF, then it will cost you $368,750 for your constructions costs. Then you need to know how much a 2950 SF new construction home would sell for in your area. Lets say it is $600,000 and if so, then $600k less $368,750, less cost of holding/carrying costs less resale costs, less desired profit = max total you can pay for the dirt.

You will need an architect and a structural engineer to generate the plans for the permits and that does cost thousands of dollars, however, that is part of your construction costs.