Given the high price tags on existing homes today, some buyers are taking longer looks at cheaper, outdated homes. For the right buyer, purchasing a teardown can make financial sense. To buy an eyesore and put a new house in its place could be good for the neighborhood, too.
Some buyers might even be thinking of taking down an old building and placing multiple units on the property. These can be very rewarding projects.
But getting to the “reward” part is complicated. Here, we offer six steps as a basic planning checklist.
Step 1: Choose a Home to Tear Down
In certain otherwise desirable areas, outdated homes need buyers who are willing to revitalize them. Such homes are normally low-priced. But property makeovers aren’t cheap. Especially if the buyer is planning to pay for a demolition and new construction as well as the real estate itself.
Could it be better to just keep the old house and do the repair work? Look for red flags in an old home, especially if it’s been left unoccupied for a while. Moisture damage is a big one. Lack of regular heating and air flow can compromise the walls and trim, window frames, doorways, floors, pipes, and appliances.
Demolishing a house might be the best way forward if:
- The home suffers from major structural issues or many red flags due to a long vacancy.
- The home has a much lower value than nearby homes on similarly sized parcels of land.
Also, find out how the city treats this question. Some make the permitting process far easier for remodels than for teardowns.
Finally, what will your makeover be worth on the market? Will it double the value of the land, at least? Then the teardown plan might have potential.
Step 2: Gather Knowledgeable People
Found a teardown and ready to get busy? Get your people lined up. You’ll want a builder, architect, agent, inspector, and mortgage consultant to guide you through the many aspects of the process.
There’s helpful guidance at your fingertips, too. Consider:
- Online resources that focus on teardown homes, like St. Paul’s PDF guide to teardown tools and TearDowns.com.
- Real experiences of homeowners who tore down their homes. These help readers visualize, prioritize, and avert common pitfalls.
A reputable demolition company can confirm that a property is, indeed, a viable teardown. Alternatively, the company might recommend keeping the foundation or key parts of the structure intact. This way, the job can be done even if local regulations limit demolitions.
Buyers will want to seek out several sets of recommendations and cost estimates, and ask probing questions about differences in the quotes.
Pro tip: The pre-demolition inspection spots issues that must be dealt with before the teardown begins. The inspector checks for red-tape issues like toxic materials and waste disposal needs.
Step 3: Check Zoning Ordinances
Before buying, consult the local zoning department. Be sure you are not looking at a historically important property that can’t be destroyed.
Will your rebuilding project be limited to the size and height of the original house? And will your plans for a replacement house be approved? Some amenities might be OK, some not.
Is the land zoned for a single-unit home only? Or has the area been “upzoned”? Some towns and cities are “upzoning” residential land — allowing for multi-unit properties and accessory housing units on land previously zoned for single-unit residences.
☛ Always check for deed restrictions before planning to build any new structure on a property. These are property-specific, and separate from zoning rules.
Step 4: Know Your Permits
Good on zoning? Next, consider your local building code. Your contractor can handle this phase of your plans. Know that they’re prepared to obtain all that’s necessary before you make an offer!
Anticipate multiple inspections and permits. A general contractor normally seeks:
- Prior permit applications by the seller.
- A demolition permit.
- Local permits for grading; plumbing; utility hookups; natural preservation.
Note that permits do expire after a given time period.
Remember that zoning and permits are not the whole shebang. Today, many subdivisions also have neighborhood associations or HOAs. Associations (often through their architectural review boards) create standards. These control the permissible setbacks, landscaping, and how buildings and their improvements can look. If you come into an association, you enter a contractual agreement, and must follow lawful rules and procedures. The architectural review committee (or the board, if no such committee exists) must agree to your proposal in advance of the work.
☛ What can a builder do if faced with an unreasonable restriction? Learn more.
Step 5: Finance the Deal
Buying a property is one thing. But how much does it cost to demolish a house? It’s typically well into the five figures. Urban homes and homes with basements are especially expensive to demolish, even if they are relatively simple structures. Expenditures can include things people don’t expect when they first contemplate a teardown project. They need surveys and soil tests. If any toxins show up, they need to be professionally removed. Then there’s the waste hauling and dumping. And then there’s the utility infrastructure and connections.
Moreover, if the title search of the old property turns up liens, these must be resolved. Watch out for tax liens! Clearing these up can be notoriously difficult. And on the topic of taxes, remember that your property makeover will increase the parcel’s value, meaning your property taxes will rise. It’s a great idea to talk with an accountant before investing in any property with plans to restore its value.
Now, where are the lenders that work with construction financing? Most buyers know about the FHA’s 203(k) loan, although that option is strictly limited in terms of renovation costs it will cover. Some buyers use construction-to-permanent loans that fund the work in installments. These loans have elevated interest rates during the construction phase, but ultimately turn into normal mortgages.
Step 6: Engage in Neighborly Outreach
If you get the go-ahead from all relevant agencies and offices, you’ll have a set of final plans that lay out the process ahead. Get the locals on board. Your work will improve the parcel. Everyone around it should benefit. Still, they’ll be understandably concerned about noise, heavy machinery, and potential hazards. Teardown and replacement work can take around eight months to complete if all goes to plan.
So, comply with local notice rules. Notify the surrounding property owners of the planned work. To be a proactive and empathetic neighbor, offer your contact information to them in case there are any issues. Show them the plans and the timeline.
Throughout the teardown and construction phases, be sure that nuisances — waste, noise, dangers to kids or animals, presence of crews outside of regular work hours — are properly addressed by the contractors.
As the work progresses (or stalls), keep the locals updated. In-person contact builds trust. And that’s a solid foundation on which to build your future.
Supporting References
Jayne Thompson for SFGate.com (Hearst Newspapers): Home Guides – How to Buy a Teardown (Nov. 24, 2022).
Kris Gleba for SFGate.com (Hearst Newspapers): Home Guides – House Remodeling and Notifying Neighbors (undated).
Bankrate.com (Bankrate, LLC, part of Red Ventures): Buying a House to Tear It Down (Jan. 12, 2023).
Andrew Dehan for RocketMortgage.com: House Demolition – Cost And Process (Nov. 24, 2022).
And as linked.
Photo credits: Oleksandr Pidvalnyi and Pixabay, via Pexels.