First off, this is a great site with a lot of useful information. Thanks to everyone for the info. you’ve contributed.
In any event, I need some advice. Here’s the situation:
I recently purchased a home in an intown Atlanta neighborhood. The neighborhood is currently in transition, with a lot of 1950-60 era homes being bought and torned down for rebuilds. The new homes are selling in the $350-450k neighborhood.
The listing price of the property I purchased was $183,000 (we can used that figure for purposes of discussion since it is public info). The home is 2bed/1 bath, with a narrow but deep lot.
Here’s my dilemna…i need to decide whether (1) I put $50k into the house to do a no-frills addition to make it a 3/2 and put it on the market, expecting it to sell in the $250-275k range or (2) do i tear down the house and build a new one that will sell in the $400-450 range, assuming i can get the new one built for $150k (if that’s even a realistic estimate).
The first scenario is less risky and will likely get me $20-45k in profit…the second scenario is obviously more risky (final building costs, high sale price of new home, etc.) but will likely profit in the $70k-150k range
Actually, i guess there’s also a third scenario i’ve considering…that is, just putting $5-10k in to update the existing kitchen and bath and putting it back on the market as a 2/1 and hopefully sell for $200-210k and in the process make a quick $20k profit with low risk…
i know this is a lot, but any thoughts/insight would be greatly appreciated…
my wife used to live in that area so I knwo what you are talking about.
Your estimate of building a house for $150k sounds low. Remember you got to demolish the existing one, have it hauled awaya nd site prep’ed. Just guess, that a $10-20k process itself.
Then there is the guestion of how much time you got. Building a new house is very time consuming porcess and has higher risk of cost over-runs, etc. Also in fast moving markets (and expensive markets) cheaper houses always sell faster than expensive ones. Many times people want to live in certain areas and zip codes, school districts, but can not afoord the “standard house”.
I think there is no right answer; it a question of time and risk that you are willing to take on.
Thanks a bunch for the response! I think you’re right…the new construction is very risky and time consuming, and probably too ambitious for a first-timer. Now I guess I just need to decide whether to do the quick rehab (5-10k) or the extensive rehab (50-100k).
Also, any ideas on how to get financing for the extensive rehab?
Thanks again for the reply!!!
There are mortgage companies that offer rehab loans. If this will be an owner occupied property you should have no problem getting done with 5-10% down.
If this going to be an investment property and you do not wish to tie up any of your own $, there are hard money lenders who can accomidate.
I think I’d steer clear of the new const. Unless there might be the possibility of selling the current structure to someone who would move it to a different location. That might add to your profits.
When you say you’re rehabbing it do you mean literally, physically doing it yourself? Or are you paying contractors to do all of the work? If there’s a building rush going on there you may have trouble finding contractors to do remodel jobs like that because they like doing new construction so much. We’ve run into that in various places where we’ve lived. They’ll tell you they’ll do it, but then string you along - greatly extending the time it takes to do the rehab - thus costing you more $$.
Also, additions can be tricky. To get them to look right and not like you stuck a box on the back of a house. I assume you’re trying to be cost effective? We generally steer clear of houses that have been added onto because they’re harder to sell. I guess you could get a good architect involved, but again, there go the profits.
Hmmmm, I’ve kind of talked myself into the option of just rehabbing the existing house as it sits. Especially for your first project. It will take less time, and since it sounds like a “hot” area you could likely start trying to sell the house before you’re even done. You might be able to make more on various upgrades the new owners might want???
Thanks for your response! I’ve decided on just rehabbing the existing home i.e., updating the kitchen and bath. You’re right about contractors. They all want the bigger scoped jobs. I’m trying to do most of the work myself, although I don’t have a lot of experience by any means. So far, i’ve been pretty good at gutting the property. Now comes the hard part - installing the new stuffs!
Wish me luck! ;D
Good choice. Just make sure the power is off before you work on anything electrical and you’ll be fine. We’ve pretty much taught ourselves the rest as we’ve gone along!