Best way to get value out of land if building is a knockdown?

[soupcxan]

Let's say I own a house on a piece of waterfront land, mortgage is paid off. The house is +50 years old and is ok to live in at the moment, but all the other pre-war houses in the neighborhood have been demolished over the last decade and rebuilt as much larger/nicer McMansions. Property values in the area have risen a lot, and this house is the last original home on the block. The lot could easily accomodate a larger house with more square footage. Eventually the remaining family member will move out of the house.

The question is, what is the best way to capture the value from this peice of real estate? That is, should I just sell it as-is and let someone else do the demolition/rebuild? Or would I get a better return by building my own spec home on the lot and then selling it on the market? I have the capital to finance the construction of a new house, but I am not local to the area so I couldn't supervise the construction on a daily basis. Although I really don't know what construction costs for a new house on this lot would be. Thoughts?

 

[yakers]

Fire? (Not the financial independence retire early kind)

 

[terminator]

No way I would build a $250k house to make $50k over the $750k. I'd need to see a HUGE margin to make it worthwhile to design a house, deal with contractors, have to sell it, etc. Don't forget tke broker commission too.

Around here it's the same situation, but the equation seems to be more like $500k lot + $500k construction expenses = $1.5MM asking price. Although that's just a guess on my part on the construction price.

 

[brewer12345]

I think that if I were in your shoes, I would either sell the land or find a partner in the form of a reputable small builder who will put up some of the capital and share in the profits (and do most of the work). Dealing with contractors is hard enough when you are nearby. I can't imagine what it would be like from a distance.

 

[wabmester]

Do you really want to get into the business of spec building? What if you misjudge the market for the particular house your build? What if the land value depreciates in the time it takes you to build?

Take the bird in the hand, and let somebody else assume the building risk. Unless you really have a hankering to become a developer.

 

[Sheryl]

ACK ACK ACK.
Sell the property.

If you really want to build a spec house, do it in your own town, where you know the market and can be there to supervise.

JMHO.

 

[Scrooge]

The desire to squeeze the last penny out of the property is understandable, but there is a reason why ((cost of land) + (construction)) is less than (cost of house)

Also, you wrote "Eventually the remaining family member will move out of the house." How does that affect your plans? What happens to the relative if you tear the old house down? What happens to the value of the land if the relative lives there for another 10+ years?

 

[Arif]

Sounds like too much trouble if you don't have a reputable builder that you've been working with. Also a lot of things could change in the time you start building and the time you get ready to sell. Just get an agent or appraisal company to value the land and stick a for sale sign on it. You could also check how much the county (or whatever taxing authority) assesses the land at for tax purposes on the recent sales in the neighborhood. They usually have the value broken down by land and building.

 

[maddythebeagle]

he he. I know of one person that did something like this for a lake lot (actually moved the old house off to another site)...which doesnt gain you much if at all since it is expensive to do if you even have someone in the area that does.....and the guy ended up building a house on the lot for HIMSELF...

 

[lazygood4nothinbum]

i had asked a similar question and got some very good responses here:

http://early-retirement.org/forums/index.php?topic=8393.0

also i got some good responses when i hijacked this thread:

http://early-retirement.org/forums/index.php?topic=7604.0

i don't know your area but i would seriously question paying $250k to build a new house on any waterfront where the house will sell for $1,000,000. if you consider a mcmansion to be at least 5,000 sf, that's only $50 per square foot and there's no way i'd pay a mil to live in that.

also, given the scheme you outlined, seems like a lot of work for just $50k.

 

[cute fuzzy bunny]

SELL!

My crappy 1800 square foot tract house was just appraised at a rebuild cost of $225k.

If you have a builder/GC as a relative or very close friend and dont mind putting that relationship at risk, you might squeeze 50-75k out of the deal. After doing a lot of work and dealing with a lot of headaches.

Get your money and make it someone elses headache.

 

[Arif]

To me this really makes it crystal clear:

700k "invested" nets a profit of 50k. So assuming you finish building the house in 1 year then your return on investment is 7%. So for going through the headache of building and tying up capital you exceed the current ING return by about 2%. Again that's a lot of work for 2% above a really passive savings account. Consider CDs or longer maturity instruments and the decision becomes even clearer.

 

[PJ03]

I'm a high-end Spec homebuilder, my thoughts; you would be crazy to put out that much money for $50K. Sell it and let someone who knows the Spec Market do the gambling.
Better yet, I would shoot for an end user to buy it instead of a Spec builder; in most cases end users will pay more for it.
Start by trying to sell it yourself by calling all the Architects in your area to see if they may have a client that’s looking (This is my best outlet for end users when I prefer to just sell the lot)

 

[lb]

I'd say sell too. I sold my mother's house as a tear down and now 18 months later the new house was sold. I got the money at the beginning and invested it, so I made money while the builder built the house and then it took 9 months to sell.

I missed all the worrying (and expenses of keeping the new house thru a winter) during this process.

I got a contact to the builder from my mother's (house and car) insurance agent - a local agency in town.

 

[modlair]

Couple of thoughts:

1) when your relative moves out, on that day that place becomes very difficult to insure. An insurance company wants a place occupied. If it's not, you risk it not being covered -- and worse, if it's not occupied and some high school kids break in and get hurt in it, you're looking at liability. It's okay to own vacant "property". It's not okay to own vacant "houses".

2) If the value is in the land, then tear the place down yourself. Then sell it. Don't build anew. Just rip it down. Then sell. If the house in current form really does have value and all value is not in the land, then just sell the place and forget it.

 

[Cransten]

I think you should sell but leave the house as is -- don't rip it down.  Some people will see value in it; the rest won't care and won't discount the land for the price of demolition.

As for vacant houses it's true you need insurance, especially liability.  But it's not that hard to get, and they only have to be checked on once a month (perhaps once a week if you're insuring the contents), or even less if they're seasonal.  I have several  vacant places and they're all insured. 

 

[Alex]

I say: leave the house alone- do not tear it down. When the time comes to sell, sell the property "as is" - and walk away happy and, unencumbered. Unless you have a grudge against yourself......then go into the spec house business and cross your fingers and toes. Just bring alot of aspirin (or even stronger medicine!).

 

[macdaddy]

I'm a high-end Spec homebuilder, my thoughts; you would be crazy to put out that much money for $50K. Sell it and let someone who knows the Spec Market do the gambling.
Better yet, I would shoot for an end user to buy it instead of a Spec builder; in most cases end users will pay more for it.
Start by trying to sell it yourself by calling all the Architects in your area to see if they may have a client that’s looking (This is my best outlet for end users when I prefer to just sell the lot)

PJ hit the nail on the head. Call all the architects and then call all the high-end builders, both may have clients in the market for land. Also, no way you build on that lot for 250k. Where in the country is this? In MD it's $200/sq ft for a nice place. Construction materials have shot up in price the last 4 years and it's not clear they will become cheaper any time soon.

 

[PJ03]

PJ hit the nail on the head.  Call all the architects and then call all the high-end builders, both may have clients in the market for land.  Also, no way you build on that lot for 250k.  Where in the country is this?  In MD it's $200/sq ft for a nice place.  Construction materials have shot up in price the last 4 years and it's not clear they will become cheaper any time soon.

I build in Annapolis MD, $200 per square foot would not get you much here, most of my projects start around the $250 mark and go up to around $370 per square foot. Not only has the materials gone up in price, so has labor, country fees, Engineering and Insurance, The only item on the job site that has not gone up is an Ford F150. in 1994 I paid $13,995.00 for a basic model, last Dec. I paid $13,445.00 for the 2004 model. Go figure !!

 

[Scrooge]

The only item on the job site that has not gone up is an Ford F150. in 1994 I paid $13,995.00 for a basic model, last Dec. I paid $13,445.00 for the 2004 model. Go figure !!

It's not just Ford F150s. An entry level 2006 Camry that you can buy for $17K comes with more "stuff" than an early 1990s Camry which cost about the same amount of money once it was loaded with nifty optional equipment.

 

[lazygood4nothinbum]

I build in Annapolis MD, $200 per square foot would not get you much here, most of my projects start around the $250 mark and go up to around $370 per square foot. Not only has the materials gone up in price, so has labor, country fees, Engineering and Insurance,

just curious (though i'm way leaning towards selling as-is) as i've a similar waterfront teardown to soon consider in south florida on very high-end location, deep water lot. what percentage of that per square foot price is your cut as a builder?

as my brother is an engineer with a gc license and lots of family connections in the industry, what do you suppose might be my price per sq ft for a 5 to 7k sf luxury home (including auger pile foundation, pool & spa)?

 

[thefed]

sell as is. why worry about the rest...50k is not enough to take the risk of losing 50k, is it?

 

[spideyrdpd]

You could cozy up to a neighbor when your in the area and learn a lot.
You might be able to do some rehab and come in out ahead the same 50k. As everyone mentioned its going to be a headache. As always when we do something it always
1. takes longer than expected
2. Costs more than we budgeted.

 

[canent]

Personally I'd sell without doing too much to the property. If I was to do anything, I might hold onto it for a while if prices are climbing in your area, but that's about it. The headaches would turn it into a full time job that I wouldn't want.

 

[PJ03]

just curious (though i'm way leaning towards selling as-is) as i've a similar waterfront teardown to soon consider in south florida on very high-end location, deep water lot. what percentage of that per square foot price is your cut as a builder?

as my brother is an engineer with a gc license and lots of family connections in the industry, what do you suppose might be my price per sq ft for a 5 to 7k sf luxury home (including auger pile foundation, pool & spa)?

For us its somewhere between 8 and 20% depending on the job.