1800's Pennsylvania Home...Rebuild or Demo and Build New?

Question

Hello BP,

During one of my direct mail campaigns( I am a wholesaler) I came across a property that I need some serious advice on. Normally I'm ok ( def not an expert) on determining repair costs and ARV but this one has got me stumped for several reasons; Asking price, Comps, whether to do a complete makeover of the home or demo the house and build a new one.

Property in Question:

Built 1860

6bd 3.5 bath

2836 sft

sits on 3.38 acres of land

property concerns:

Needs MAJOR upgrades: heating system, plumbing, electrical,roof,windows, walls,flooring, sunken floors in some rooms,major paint, appliances, kitchen needs full remodel, all baths need full remodel.

Positives: House is structurally sound ( would recommend further investigation on this)

the area is a very affluent rural area and property does have potential if done right.

Comp #1

Sold 4/28/16 for 389,000

Built 1980

5bd 4ba

2753sft

Comp #2

Sold 2/26/16 for 366,900

Built 1955

4bd 2.5 bath

2500sft

ARV of property 375,000 (average of the two homes that were less than 1/2 mile from property in question)

These are the best comps I can come up with. Other homes in the area either had too few rooms, not enough square footage, too far away, and not within the past 6 months. The house is currently under contract with a Real Estate agent who would be more than willing to split the commission with me. The house has been on the market for almost a year and the seller does not intend to renew.

His asking price 275-280k

His reason for selling?

Has had several bad experiences with tenants. Has had several low ball offers around 250k.The house is divided among four owners and all are in agreeement that they want to sell the property.

My Question:

Is there more potential in a complete demo and build a new home similar to the ones in the area and have the extra land as a value add, or can this home be saved and if so, is the 275k a good price for both scenarios. I am unfamiliar with the costs of a new build which is why I'm reaching out. All comments, questions, criticisms are greatly appreciated. I have pictures of the property for those who are expressing serious interest. Thanks again.

James Mc Ree · Answer

There are at least 2 other things to watch out for in rehabbing the property:

Is the property protected by the federal or lower historical preservation register/ordinances?  If so, demolition becomes more difficult and changes may fall under the purview of your local township who may want to preserve the historical character of the property (meaning rehab is more expensive).  That is not a bad thing if your end result is an awesome 1800s restored home, but that might not be your goal.

Your buyer might want that 1800s restored home and you might not have it if you make it modern.  Be careful with upgrades so as to keep the essential character of the house.  A historic home can have value in itself if preserved and can lose the historical value if the history is lost in the rehab.  Check to see if the house or property has a story and consider incorporating the story into your rehab.

$275k Might not be a bad price for buying a few acres of premium land, plus demolition costs.  $100k per acre?  That might only make sense if you can subdivide the property and build 3 premium homes or you will end up building a super-luxury home (nice, but pricey).  Consider calling local builders to get a feel for build prices.  Pohlig Brothers are good and local.  They built Athertyn.

http://www.athertyn.com/

http://www.pohligbuilders.com/

Good luck!

Jim.

Jim Hogan · Answer

Where does the house sit on the 3 acres?  Can you rehab the house and sub divide?  If not tear it down and start thinking how many new homes can you build on it.  No reason to go with one if you can get 6 plus houses on the property.  You have me curious on where the property is and if it is local.  If it is local and you need a builder PM me.  I can give you a name of a good guy.  I may even be able to assist you in the house plans that I already have in my possession.  Let me know,

Jose Gandulla · Answer

Thanks everyone for their responses I agree that the price is probably the biggest concern and to @David Dachtera 's comment( love the yogi bear reference I loved that show!) that he does indeed need a reality check which is what I will have to explain to the Realtor as well. The property is free and clear besides some tax payments coming up in a couple months Thanks everyone for the information. I will keep you guys posted!

Dominic Lucarelli · Answer

One thing you might not have considered:

If this home is as old as you say it is, it's probably historic. Check with your local historic society for the old owners of the home.

Also, if it has a story it might be a museum-type piece, I.E. a tourist attraction. Which may or may not be worth more than the value of the home itself.

$5/per tourist x 10,000 visits per year = you guessed it!

If this is true, you can take a small portion of the remaining land, build a bed and breakfast, and make money two ways.

Or, turn that old building itself into a bed and breakfast.

Lots of possibilities. Good luck and keep us posted!

Tamara Elliott-Deering · Answer

From an investment standpoint, this house doesn't make sense. A renovation or restoration always takes more time and money than you think it will. Plus these houses are impossible to comp and buyers usually don't pay a premium for things they consider standard like plumbing, electrical and HVAC which is where most of the Reno money goes. I'm speaking from experience I did a full restoration on an 1880s house two years ago but I knew going in there would be very little profit, I did it because I'm crazy and I really needed to save the house.

If you bulldoze over 150 years of history much bad karma will come your way. It sounds like you're just trying to find a buyer and share the commission if that is the case, there is a website and weekly ezine called Circa that will advertise the home to the right market for $45. Emphasize the land, take great pictures of the period details like rosette and crown molding, and the staircase, we old house lovers are suckers for staircases. If you have any history on the house you can put that together for potential buyers. It may very well sell, you almost had me convinced and I can't afford it and hate the cold.

Patrick Liska · Answer

Walk away, that $100,000 difference will cost you about $25,000 in realtor fees when you go to sell, leaving you $75,000 to do the remodel and make a profit. unless you are funding the whole thing, you will only be able to get a mortgage for about $262,000 ( 70% ARV ), so you will not get the money from the bank to do the repairs. and that $75,000 will go fast by what it seems like needs to be done.

David Dachtera · Answer

@Jose Gandulla,

Sounds like you need to give the seller a reality check.

Even at $250K, that only leaves room for $120K or so of rehab, and it will probably take at least twice that, the way you describe it.

I'd make an itemized list of needs and cost to repair and show the seller what the house needs just to get "current". Then, compare that to the comp.'s to justify an asking price with at least a little "meat on the bone" for you.

"The ranger isn't gonna like it, Yogi!"

Knock it down and build new? You'd have to get the property free and some money besides.

My $0.02...

David J Dachtera

David Soest · Answer

I'd walk away from that one.

Not enough room for profit.

1800's Pennsylvania Home...Rebuild or Demo and Build New?

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