Rehab or tear down and build new?

Question

It appears there's only one related thread on this topic from 3 years ago, and wanted to get some more recent opinions from the group on this.

I have a deal in Houston that is a major rehab.  In my experience, I've taken a house down to the studs pretty much, but have never taken one down to the slab or built brand new on a site.

This house is one where I'm weighing those options.  The house literally needs everything from roof to foundation, mold, etc.  I'm talking to contractors and builders, but wanted to get other's opinions.

At what point do you consider taking a house down completely or down to the frame versus trying to just rehab what exists?

What should I expect that wouldn't come up in a typical major rehab?  Additional permits or rules/regulations, etc?

And who should I trust to handle the job?

I'm also trying to figure out what makes the most since from a timing and cost standpoint?

Thanks!

Karen Margrave · Answer

Go down to the building dept and ask how long it takes to get permits through. Ask what has to be done for the structure to be considered "new' construction. New has many more benefits, as remodeling an old house, you still are selling a remodeled old house.

How extensive is the mold, etc. In Texas can you do that work or do you need specialized contractor to come in and do it?

Are there any homes that have sold recently in the neighborhood? If so, were they bought by investors to rehab and resell? What did they sell for? If you're not sure, call the listing broker and say you're an owner/builder that bought in the neighborhood, and are doing comps, ask them if they can give you info. Most will be happy to do that, wanting to get the listing when it's finishedAlso, ask what they think a home, once completed would go for, etc.

Have a few contractors come over and give you estimates on the things you're not experienced in. (electrical, plumbing, etc.) then use them, it will save you money and liability, in the long run.

Basically, ask alot of questions from different people, and weigh all the options! Good luck.

Account Closed · Answer

Are you having to reframe the exterior walls?  My gut says there's a lot of framing you won't have to redoon the exerior walls if it's only 50 years old--i'm sure you'll be redoing interior framing when changing floor plan.  How about exterior material...stucco, siding, brick?  Is that being replaced or no?    Fixing a foundation is one expense.  Repouring an entire foundation is a whole nother.  In certain areas here, when building new, you have to conform to new setbacks (yes they actually changed in some areas) so that could negatively affect your foot print and square footage.  I'd look into the setbacks for that lot when building new.  The permit process is quite lengthier for plan approval in my area than just an upfit/gut remodel.  Not only that, but here it requires engineered plans ($$$).

Account Closed · Answer

Jordan:  what's the ARV for comparable sq. ft. house (not new but rehabbed) in the area?  Are there any new houses in the area?  Some areas just can't support new construction, especially in the inner cities (unless it's truly a hot inner city market).  The permitting for new builds is really an issue in some areas.  Permitting for new construction in my home town is way longer than 6 months.  Review after review after review.  So some rehabbers go down to foundation and one wall to keep it a "remodel".

There's just too much available housing stock at cheap sq. ft. prices to justify new construction unless you are in a special market.

Brian Hickey · Answer

Usually depends on the state of the current structure and the value of surrounding homes/properties.

If the value of the homes in your immediate neighborhood are selling around 3x the value of what would be your newly constructed home (including land cost) then tearing down and rebuilding can make sense.

If this simple equation does not work for your project, renovation may be the better solution.

Every project is different - do you homework.

Thanks,

Jordan Bateman · Answer

Thanks for the advice, it seems like it will be easier to just do a major rehab, enough to keep it to just a "rehab," which I've done, but probably not to the extent we'll do here.

The outside framing may be ok, and if it's worth it to keep it, we may just work with that and gut from the inside.  Definitely don't want to bother with pouring another foundation, but we will have to repair it in order to remodel.

The ARV is close to $125k conservatively for an older house, and the neighborhood can probably only support about $150k total.  I recently took a $400k house (which is a lot in Houston) down to the studs in a nearby neighborhood, and completely remodeled it, but it was in much better shape.

It's really the permitting that I was not clear about, and seems like it may not be worth it.

Some great input here that I'll consider...my gut is that the neighborhood doesn't justify a new build, but certainly a thorough remodel.

Jordan Bateman · Answer

Steve Luo Thanks.  Paying cash for everything, and I am looking into property tax considerations.  If it takes 6 months then no way, I'm not doing it.  A builder would have to knock it out much quicker than that, so that's something to consider.  But since it's all cash I could wait, but certainly don't think I need to and don't prefer to.

I will be selling it retail, not living in it.

Jordan Bateman · Answer

Steve K It's in reasonable (not great) but older area that is turning around.  It's in the inner city, so there's no land available around for builders to build new (which I see as a plus as the supply won't be changing unless they start tearing down).

I haven't seen a lot of new builds.  Houses were mostly built in the 60's, a lot of remodels, but not many new builds.  I would definitely not want to overdo it, unless the cost makes sense.  The house would need to "fit in" pretty well.

It is a good enough deal where I have a fairly hefty rehab budget, which is why I'm considering this.

Also, at a certain point, can it be cheaper to rebuild completely than try to contend with a remodel on a dilapidated house?

Steve Luo · Answer

Building new needs permit, that might be a time consuming process.

Assume 3% property tax, 5% interest rate on the money, extra half year wait consumes 4% what you paid for the property.

Said that, I will tear it down, if I am living in it.

Steve K · Answer

Too hard to answer based on what you've shared.  Is it in a reasonable neighborhood that would bring in new construction buyers?  Would your rehab costs rival your new build costs?

If at all possible I prefer new construction.  It's pretty easy to project your expenses ahead of time and if your builder is good you should rarely run into any unexpected problems.  I also think it's more appealing to a buyer as everything is new and generally worry free.

I'd look for smaller builders that you can build a long term relationship with because with any luck you'll be doing this repeatedly, especially in a city with a land mass like Houston.  Learn your lien laws and pay with draw schedules.

Rehab or tear down and build new?

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