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  • Tear Down and Rebuild

    I'm looking for some advice on tearing down and rebuilding my primary residence. I purchased the house 5 years ago for $550k. I now owe about $450k still on the 15yr 2.25% mortgage. We are on a lake, we love the lot, love the neighbors and neighborhood but just don't love the house. We talked to a couple of builders about a large remodel to get what we want, but they all said it would be cheaper to build new than make the changes we wanted. So we are now considering a complete tear down.

    Does anyone have experience doing this or expertise in how to finance this? I assume, because we are tearing down the mortgage collateral, my mortgage company is going to make me come up with the remaining $450k on the mortgage before I can do that. If that's the case, how do you finance the construction afterwards? Can this be done with one new large mortgage that covers the old mortgage and construction costs? If anyone has guidance I'd appreciate it.

  • #2
    https://www.bankrate.com/mortgages/c...loan%20closing.

    Construction loan then the mortgage loan .

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    • #3
      It won’t hurt to ask your lender for suggestions on what to do and to get answers to your questions. It’s not like they’ll call the mortgage if you ask.

      Houzz.com has remained near the top of my list for advice on as I have gutted and started the remodel of my new house in Nashville (Brentwood). I went from ZERO knowledge about decorating, remodeling, and construction to being able to give advice to my mom, who has built all 3 homes she had lived in (by age 60 - she is awesome and doesn’t know it). Anyhoo, I found this thread that may give you a little insight - even though it’s 12 yrs old and was posted just after the housing market imploded. Not all is relevant, but some points are.

      Fwiw, I almost did the same thing with mine, but I’m glad I didn’t, even though it has been a major PITA at times (roof leaked, foundation needed to be raised a couple of inches, and so on). But it w/h/b very very expensive to do a rebuild in this housing market - Nashville is still red hot and appliances, etc. are languishing at port, so you might consider that in the calculation of how long you’ll need to rent or live with family. Are the contractors considering that?

      Good luck!
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        I have no advice for what you are looking for but would consider the quality of your present house before you make your decision. Remodeling an older house is generally more expensive than building new but sometimes (certainly not always) you just aren’t going to get the workmanship of an older house. My house is 70-80 years old and is built like a tank. It is really solid. I know people on here tend to say that older houses are more maintenance/trouble than newer houses, but I think it depends on the time period it was built and the standards for workmanship during that time. With the current labor and materials shortage, I would worry that shortcuts might be taken and you’ll come out with a less quality product than if you had remodeled. I might be completely wrong and I’m sure many will disagree with me though.

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        • #5
          Originally posted by BryanMD View Post
          I'm looking for some advice on tearing down and rebuilding my primary residence. I purchased the house 5 years ago for $550k. I now owe about $450k still on the 15yr 2.25% mortgage. We are on a lake, we love the lot, love the neighbors and neighborhood but just don't love the house. We talked to a couple of builders about a large remodel to get what we want, but they all said it would be cheaper to build new than make the changes we wanted. So we are now considering a complete tear down.

          Does anyone have experience doing this or expertise in how to finance this? I assume, because we are tearing down the mortgage collateral, my mortgage company is going to make me come up with the remaining $450k on the mortgage before I can do that. If that's the case, how do you finance the construction afterwards? Can this be done with one new large mortgage that covers the old mortgage and construction costs? If anyone has guidance I'd appreciate it.
          why did you buy five years ago if you didn’t like it. I would sell and buy a different house.

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          • #6
            Well, we didn't just buy the house that we dislike 5 years ago. We bought the entire property and we love the location, the land itself, and people we live near. We don't want to move, we just want how much we love the house to match how much we love the location.

            My circumstances have changed a bit since I purchased the house. I am making double what I had been expecting to make. Small cosmetic renovations we thought we could handle when we purchased actually proved they would need substantially more work once we were really able to look into them. I definitely made some mistakes buying this house as my first house. I was fresh out and ready to splurge. Luckily my income went up around the same time I got serious about paying off my student loan debt. Now that those are knocked out and my retirement savings is on track, I want to live comfortably in a house I like. I anticipate the cost of building the sort of house I want, plus what I took out in mortgage initially, will probably equal what I can sell the house for down the road if I ever decide to. Not a great investment, but a great place to raise a family and relax after work.

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            • #7
              Your response gives me reason to pause. Not so much about the house, but so many miscalculations in 5 years.

              I can guarantee the house you build in 5 years you will find a number of things you don’t like or would have done differently. In another 5 years, again things will be different, in your life, tastes, needs and desires. Not once have you mentioned the price of the “new house” and the cost of transition.

              The value of the land and the house need to be separated on paper. Old house plus the new house (plus transition costs) is the additional money your putting into this project.

              I would personally feel more comfortable if you ran numbers and paid cash for the land and then we’re comfortable with the net housing improvements.
              *Things went well on your business
              * Not so well on the house
              Not all tear downs and rebuilds turn out well. Even the best builder (hard to choose) leaves you with the tab. You will probably have way to much money invested in the property.
              Behaviorally, identify the cost of your miscalculations and pay those off, don’t roll them into the new mortgage.

              Car leases underwater tend tend to roll them into a new lease. Consumer is exploited.
              If you have the cash to cover your losses, pay it when to move forward, you can afford it. If not, you can’t afford the rebuild.
              The construction loans are expensive as well.
              Building a new house is difficult and mistakes are expensive. Work on that. It can easily be a year or two year process.
              Rolling $450k into a rebuild gives me concern.

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              • #8
                I can't imagine scrapping the house to build new in this circumstance. I have Chest pain just thinking about this, setting a match to a $500k home and likely more since the recent housing price appreciation over last year or so.

                I understand you and your family like the neighborhood, however I would recommend selling it. You can then either buy land nearby and build or find a new home already built in general region.

                But congrats on doing well thus far in the job, making double from what you were making 5 years ago is impressive. I guess I don't make enough money or I'm too frugal to consider this proposition... lol

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                • #9
                  Originally posted by Anne View Post
                  I have no advice for what you are looking for but would consider the quality of your present house before you make your decision. Remodeling an older house is generally more expensive than building new but sometimes (certainly not always) you just aren’t going to get the workmanship of an older house. My house is 70-80 years old and is built like a tank. It is really solid. I know people on here tend to say that older houses are more maintenance/trouble than newer houses, but I think it depends on the time period it was built and the standards for workmanship during that time. With the current labor and materials shortage, I would worry that shortcuts might be taken and you’ll come out with a less quality product than if you had remodeled. I might be completely wrong and I’m sure many will disagree with me though.
                  I think this very true. My house is about 14 years old. Very solidly built. New houses in my neighborhood all have hollow doors and very little mouldings. A well built house with a good location can easily be cosmetically updated.

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                  • #10
                    What's the value of the average lake home in your neighborhood? Are they all new rebuilds already, or will you be the first?

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                    • #11
                      Are there no other lots in your neighborhood you could build on?

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                      • #12
                        I would start by asking what is the current value of the land and what is the current value of the house.

                        In a desirable, high cost location, like where I live, an older home can be worth little more than the land it is built on. For example, in my neighborhood, an older, lower cost, 1MM house is likely on a piece of land worth 750k and the improvements (i.e. the older house structure itself) worth an extra 250k. A new house on the same lot could be worth 2.0MM or more. In that type of situation, it can make financial sense to do a teardown.

                        Since you are on a lake, what is the value of the land and what is the value of the house? If the land is the primary value and the house not so much, then a full tear down and new build could make sense. But each circumstance is very unique. I would start by analyzing the numbers. And I would pay attention to the cost to build and the market value of the newly built house on the lake.

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                        • #13
                          I appreciate all of the replies. Definitely helping me wrap my head around the magnitude of this financial decision. Their really aren’t many empty lots on this lake and definitely none available in the area I would live. My lot is “special”. It’s a double lot with double the lake frontage, it’s on a private beach road with only 11 houses, it’s in a slight cove which keeps it protected from the large waves the lake gets, and it’s relatively flat to the water’s edge. These are all things that are somewhat unique on this lake.

                          My neighbor bought his lot which was half the size and unbuildable due to wetland designation for $150k. He then spent $100k in wetland reclamation fees to make it buildable then put a $500k house on it. All this to say I don’t know the value of the land alone but I would guess it is $300k-400k. There is a semi recent tear down and rebuild 4 houses down. I don’t know what the rebuild cost but the newest buyers paid $1M and the lot is half the size.

                          I have a lot of work to do and a long way to go on the process but I appreciate the advise at least pointing me in the right directions.

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                          • #14
                            If it's a livable house, I can't see justifying the cost of tearing it down and rebuilding a place. If you really want to build a place, I would suggest looking outside the location which you view as special for an empty buildable lot. Building a house is already a luxury and usually not a wise financial decision, I can't see adding the cost of tearing down a sellable home and building a new home as being a wise financial decision. If you are really tied to your district, I would suggest meeting with a reputable home builder who can find you an acceptable lot to build on. Unless you live in some crazy housing market, I think that most people lose 10% or more building a new home vs buying a pre-existing one. I think that I would only consider tearing down a home to build a new one if I could do so with cash.

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                            • #15
                              Perhaps it is time to get a licensed architect involved? Generally a licensed architect is more versed in local codes, regulations, and what could be done; very different perspective from a general contractor. Sometimes they don't get along though, and the licensed architect will act on your behalf, especially helpful for more complicated and high end rebuild or remodel.

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