If you’re trying hard to get a good home in a sought-after area, 1 option is to buy an unsuitable property on a excellent lot and rip down the house. For many properties, it’s less expensive to demolish the home and reconstruct from scratch than to remodel an current structure. In general, buying an obsolete home follows the exact same transactional procedure as buying any other home. Teardowns can be challenging, however, and need extra homework prior to making an offer.
Ensure the Project is Financially Viable
Teardowns are nearly always small, obsolete or faulty homes in desirable neighborhoods. Because of their condition, the majority of the house’s value lies in the property, which means they tend to be priced below the average for their location. Whether the list price is reasonable depends on how much it costs to demolish the property — typically $5,000 to $20,000 for a 1,500 square foot house, according to Bankrate — and reconstruct your dream home. As a rule of thumb, a teardown is viable if it can support a new house worth two to three times more than the sale cost of the teardown.
Zoning and Permits
Prior to making a deal, check with the local zoning department to observe how the house is categorized. Structures identified as important to the foundation of the area are shielded, and can’t be ripped down. Most municipalities won’t let you demolish a home without a license, and whether the subdivision is governed by a homeowners’ association, you may need HOA approval as well. Make your offer contingent upon the necessary permits and consents, and factor the cost in your offer price.
As counterintuitive as it may look, the home needs professional review, even though you plan on ripping down it. Employ a professional building inspector to test for hazardous substances, such as asbestos or lead paint. If hazardous materials are found, your demolition and waste disposal prices will soar. Underground fuel storage tanks and landfill pose similar problems; locate these, and you add extra layers of tape into your job, including the need for environmental consents.
Traditional mortgages don’t enable you to tear down a mortgaged home since you are ruining the collateral for the loan. Therefore, you either need to finance your purchase using other collateral — yet another property, for example — or seek out a professional”construction-to-permanent” loan which releases cash in stages during the construction phase and eventually converts to a long-term permanent mortgage. Shop around with the help of your agent, and hope to pay a higher rate of interest from the early build phase of your loan.