Daily Real Estate News | March 3, 2008
How to Judge if a Teardown Will Pay Off
When does buying a house and tearing it down make economic sense?
Builders have a guide for estimating whether a teardown will pay off. Generally, the cost of the land must be one-third of the cost of the final sales price of the house.
For instance, if the old home and the land it is on can be acquired for $400,000 and the new house can be sold for $1.2 million, then the builder can spend $600,000 or $200 per square foot on a 3,000 square foot home and still cover miscellaneous expenses and make a profit.
Home owners who are contemplating buying a teardown and commissioning a custom-built home should keep this formula in mind as they consider whether the proposition is realistic, experts say.
Source: ThinkGlink.com, Ilyce Glink (03/01/08)
