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Tear Down and Rebuild

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  • #16
    I recommend watching the movie Mr. Blandings builds his dream house.

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    • #17
      Originally posted by childay View Post
      Are there no other lots in your neighborhood you could build on?
      It sounds like a large lake lot. The real question is how much of the $550k is the improvements and how much is land. This greatly changes the choice.
      80% land 20% improvements?
      20% land 80% improvements ?
      Changes the benefits completely.

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      • #18
        I guess I don't actually know the divided out value of the lake lot vs the house on the lot. Going off rough math, and the prices on houses near mine that have sold and one that sold and was torn down on an inferior lot, I'm guessing the lot alone is worth about $500k. My place currently assesses at around $880k if you trust Zillow. With appreciation and the hyped up real estate market on lake lots around here the land is probably worth what I paid for the house and land 6 years ago.

        I guess my original question was less about "should I tear down and rebuild" and more about "What are the mechanics of financing a tear down and rebuild?".

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        • #19
          Originally posted by BryanMD View Post
          I guess my original question was less about "should I tear down and rebuild" and more about "What are the mechanics of financing a tear down and rebuild?".
          What does the lender think about all of this. Legally you don't own the house, the bank does. So they have the final decision on it unless you come up with the money to pay off the rest of the mortgage.

          They might agree the land is as valuable as the money owed or they might not. If you tear down and due to builder disputes ( yes, they occur) the building does not get built - the bank now owns a piece of land they don't want versus a house that they could have sold and recoup their loan.

          So nothing can proceed without your bank's permission and its rules. If they say no, you have two options - stay put in the old house or pay back the rest of the loan and do what you want with a empty lot plus the rubble.

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          • #20
            Originally posted by Kamban View Post
            Legally you don't own the house, the bank does.
            No, you legally own the house. The house serves as collateral to secure your mortgage, but that doesn't mean you don't own the house.

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            • #21
              Originally posted by bovie View Post

              No, you legally own the house. The house serves as collateral to secure your mortgage, but that doesn't mean you don't own the house.
              A little bit of semantics but another way of looking at it is that you do not have title of the house in your name as long as you owe money to the bank.

              A mortgage grants ownership of your home to the lender which will transfer the title back to you after the loan is paid.

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              • #22
                Originally posted by Kamban View Post

                A little bit of semantics but another way of looking at it is that you do not have title of the house in your name as long as you owe money to the bank.
                You own the house. Your name is on the title. However, you don't own the house free and clear.

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                • #23
                  Originally posted by Kamban View Post

                  A little bit of semantics but another way of looking at it is that you do not have title of the house in your name as long as you owe money to the bank.
                  Actually, where I live may be different. The title is in the owners name but a Lien and Deed of Trust is filed that requires the lender to provide approval for sale.
                  The is the lien release the lender provides that removes the lien. Your mortgage agreement will have affirmative covenants, like maintaining and insurance. That is what will trigger a call on the loan. Any other lender will find the primary lien and require a release.

                  Your property tax appraisal with show the land and improvements. Not necessarily market, but it gives you an idea.

                  I have an old property with $233 land and $30k house. In that case, I would rebuild it and a bank would actually love to see you sink money into it. Reverse it, not possible.

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                  • #24
                    Originally posted by Kamban View Post
                    A little bit of semantics but another way of looking at it is that you do not have title of the house in your name as long as you owe money to the bank.
                    It's not semantics, it's the cornerstone of property law. My right to remain in my own home is established by the fact that my name is on the title. I'd love to have someone knock on my door and suggest otherwise.

                    That said, and as I previously pointed out, the home serves as collateral for my mortgage, and if I default on contractual obligations outlined within the terms then of course I may face consequences up to and including foreclosure of the property. But that's a separate conversation. If I didn't own it, they'd just evict me.

                    Foreclosure is to title as eviction is to possession.

                    The bank owns the mortgage. I own the home.

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                    • #25
                      We are in a similar Lakehouse rebuild situation where the original part of the house is 50+ years old with 8ft popcorn ceilings. The difference is we are now debt free and rapidly approaching an 8 figure net worth. With unknown building material and labor costs we are still approaching this cautiously. Is a new build excluding the lot at $200/sf or $400/sf? Hard to get accurate numbers.

                      I would suggest that if your income is so much better than anticipated you might consider getting yourself in a stronger financial position debt and cash wise. This would give you time to really evaluate what you want in that next house and let supply chain catch up. It would be a shame if you were in the middle of an expensive project with limited cash reserves and you have to cut significant corners to finish the project because you ran out of money and options. You also never know what the next big thing in the world will be. It would be a shame if something weird happened like your specialty/business be declared "nonessential" by the government.

                      Get in a stronger financial position. Just an old guy who has seen and been through a lot.

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                      • #26
                        Originally posted by CalMD View Post
                        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.
                        … we are considering doing the same.

                        … our land is worth a lot, and the house almost nothing. But it would cost a lot to rebuild.

                        … talking with an architect, AND a good realtor has been very helpful to think through the realities of such changes. (We also talked with our lender who offered a construction loan, which pays off the current loan, then morphs into a new 30y fixed mortgage (pending an appraisal) after construction.

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                        • #27
                          Thank you that is helpful. Do you know what the rate on the loan they offered would be?

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                          • #28
                            We did something similar roughly 10 years ago bought a few acres in a very desirable older subdivision that happened to have a 3600 sq ft house. We liked the lot, didn't like the house. However we paid cash. It took us almost 2 years to decide to knock down the older house and have it hauled away. We found house plans on the internet for a fraction of what it would cost to involve a local architect and found a contractor who was familiar with ICF (concrete) in our town. Very unusual construction for our city. We cash flowed it ourselves. But you need to have patience and attention to detail to catch the mistakes as the subs attempt to make them meaning be on site 2-3 X day. Long story short we love our house. If I could do anything differently, I'd make it half the size. It's a ginormous pig.

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                            • #29
                              Originally posted by PhotonsRGR8 View Post
                              We found house plans on the internet for a fraction of what it would cost to involve a local architect and found a contractor who was familiar with ICF (concrete) in our town. Very unusual construction for our city. We cash flowed it ourselves. But you need to have patience and attention to detail to catch the mistakes as the subs attempt to make them meaning be on site 2-3 X day. Long story short we love our house. If I could do anything differently, I'd make it half the size. It's a ginormous pig.
                              We had a couple of people who used architects and their costs were huge but the common complaint was that they were prima donnas who had the attitude of my way or the highway, costs be dam*ed. They constantly butted heads with the builder and in the end the owners were unhappy with both.

                              We had a builder who also had CAD at his office. We had an idea of what we wanted. It took us almost a year to have the final plans with multiple screen redraws. But the cost was again a fraction of the architect's estimate.

                              We tried to make trips at least once a day. But then we had weeks or months when the builder gave some excuse and the project came to a standstill. That was the most frustrating part. We managed to catch some issues and rectified it in time but could not visualize others until it was too late. Now we know what we want in a house but we have no desire or energy to build another one. Overall we are happy with it, though a bit bigger than what we started out planning at the beginning.

                              Last edited by Kamban; 11-04-2021, 08:35 AM.

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                              • #30
                                Seems like too big, too drawn out, and pretty hands on is a theme from those that have done it before. These issues worry me more than the financial sense of rebuilding a house. Maybe waiting a year or two to see when labor and materials catch up after COVID is the right choice. In the meantime I can work on paying down my current mortgage to keep the size of the construction loan down as rates rise. My sister in law is our architect which saves in fees but probably has plenty of other issues associated with it.

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