Every now and then an investor will come across a property where it isn’t immediately apparent if they should keep the bones of the house and renovate the property or if they should completely rebuild. Usually, this is something that is easily determined after the investor does their due diligence looking into the property, but here are a few tips on what to look out for and what to keep in mind when making this decision.
The main points of consideration when determining whether to renovate or rebuild are the property’s cost-benefit analysis and after repair value (ARV) determination. The number one question you are trying to answer is whether it will cost so much to renovate that it would actually be cheaper, or comparable, to just demolish and start over.
One important thing to consider when making your decision is whether or not homes are being torn down and rebuilt in the area. If they are not, and the property is in need of a major rehab, you will have to purchase the property at a price that covers the additional costs or the rebuild. Remember that the last thing you want to do is create a product in a place where there is no demand for it – for example, building a 5,500 sq. ft. Arlington Craftsman house in Capitol Heights, MD. It is imperative that investors understand their market, and know what is needed where.
On the other hand, if there are tear down properties in the area and the price of a renovation is comparable to that of a complete rebuild, it’s probably worth the rebuild. New homes tend to go for a premium, so even if it adds additional expenses, you should be able to make it up once you sell.
Here are a couple other factors to consider:
- Functionality – Does the house need to be completely gutted because the layout is outdated? Are there only 2 bedrooms, but all the surrounding renovated properties have 4 or 5? If the interior layout of the home is completely obsolete, it will be hard to sell even if you update cosmetic appearances such as the walls, floors, and appliances.
- Structural Concerns – If you have to underpin the foundation or fix foundation walls and structural cracks along with a full gut renovation, it might make more sense to rebuild.
Let us know if you have any questions, or would like to speak with us further about a property.