A young couple spends $185K on an older single-family house in a desirable neighborhood. Similar-sized homes in the neighborhood and surrounding area typically sell for $300K+.
After five to seven years in an older house, the couple feels lucky and content. Then, they have the “inspiration” to demolish their existing house and build a new one on the same plot. They truly enjoy their neighborhood and would want to remain in the same place.
Is it ever economical to do this scenario? Is it usually a better option to just sell the old, dilapidated house and utilize the money earned to purchase a new one?
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I had a similar dilemma when my partner and I bought an older home in a sought-after neighborhood. Over time, we grew attached to the area but found the aging house increasingly impractical for our needs. After considering renovation costs versus rebuilding, we opted to tear down and rebuild. The decision was based on several factors: maintaining our preferred location, customizing a new home to our specifications, and potentially increasing property value. While initial costs were high, we felt the long-term benefits outweighed them, including improved livability and modern amenities that suited our lifestyle.
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In considering whether to demolish and rebuild or sell and buy anew, it’s essential to weigh the pros and cons carefully. Demolishing and rebuilding can be economical if the new construction aligns with the couple’s long-term plans, offers customization opportunities, and enhances property value in a desirable neighborhood. However, selling the old house and purchasing a new one elsewhere might be a simpler option if renovation costs are prohibitive or if the neighborhood’s property values don’t justify the investment. Factors such as local housing market trends, personal finances, and emotional attachment to the neighborhood should all influence the decision. Consulting with a real estate expert or a financial advisor can provide valuable insights into the most cost-effective and rewarding choice based on individual circumstances.
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This strategy is usually only cost-effective in very expensive neighborhoods. Take my old neighborhood as an example. Back in the late 90s, homes there cost between $300k and $500k (which would be around $500k to $800k today). It was a nice area then, but now it’s a very desirable place. Most of the original homes, about 75%, have been replaced with huge houses of 7,000 to 8,000 square feet that sell for $3M to $5M. As a result, the old homes are now being sold for $1M to $1.5M, mostly as teardowns.
In such cases, tearing down the old homes can make financial sense. However, many people with more money than practical sense just want to live in these trendy neighborhoods with the wealthy elite.
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You often see this in areas like Santa Monica and Venice in LA. People want big, fancy homes in great locations. Sometimes, even if they buy a house for less than a million dollars and rebuild it, they can sell it for a few million.
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In my part of LA, developers are purchasing small, older houses for around $1 million. They then replace them with new, modern mansions and sell these homes for about $2.5 million.
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The main reason it is not cost-effective is that you need a place to live while the teardown and rebuild are happening. It’s usually cheaper if an investor handles the project, which is why people often choose to sell to an investor.
Ok, hello guys If rebuilding and demolishing would be more cost effective if the cost of major improvements is comparable to or more than that of building a new house and the local market is supportive of the investment. Since each circumstance is different, it is crucial to obtain thorough estimates for both solutions and take the advantages over the long run as well as any prospective resale value into account. A more specialized opinion may be obtained by speaking with a contractor or real estate agent in your neighborhood.