Want to build a new home in an established neighborhood? Tear downs and infill homes may be a viable option for you.
An option many home shoppers overlook is building a brand-new home in an existing neighborhood that offers key features they want: Good schools, a short commute to work, a well-developed sense of community, and close proximity to cultural and entertainment options.
How’s this possible when close-in neighborhoods tend to be fully built up, with no empty lots? You can find the answer across the country in places like the suburbs of Washington D.C., Chicago, New York, Boston, Austin, Los Angeles, Houston, and Seattle.
The Tear Down Option
By tearing down older, functionally obsolete houses whose main value is in the land they’re built on, builders can create up-to-date homes that are either built for specific purchasers or sold on speculation in the regular real estate marketplace.
Though the term “tear down” was associated with outsized McMansions during the housing boom years, today most buyers and builders replace the houses they demolish with new homes more in sync with the surrounding neighborhood. Tear downs are also welcomed by some local governments as property tax revenue enhancers since they produce replacement houses that cost much more than the demolished home.
But tear downs can be complicated — involving permitting, zoning, historic preservation, and demolition challenges that buyers of homes in newly developed subdivisions never encounter. Here’s a quick guide to help you answer the core question — could a tear down and custom-built replacement be a smart move for me?
How Do I Recognize a House as a Tear Down Candidate?
Potential tear downs almost always are houses that aren’t quite up to current standards in sought-after, attractive neighborhoods. They may be smaller-than-average in square footage, have outdated kitchens, lack sufficient bathrooms and are energy guzzlers.
They may have serious structural issues, making them difficult to sell because of the cost of repairs. As such, they tend to be priced below the prevailing average for their street or neighborhood and often sit unsold longer than others, unless their sellers are actively marketing them as prospective tear downs.
According to Chicago-area tear down real estate specialist Brian Hickey, who heads InfillRE, LLC and Teardown.com, a tear down should be able to support a new house that, when complete, is valued at two to three times the price of the tear down house at acquisition. Put another way, if you can buy an older, functionally obsolete but well-located house for $300,000 and a newly constructed house on the same lot will support a price of $600,000 to $900,000, it may be a suitable candidate.
Do I Have to Knock Down the Entire House?
Absolutely not. In fact, in some communities, local government rules encourage substantial renovations over demolitions by making the permitting easier and faster. You might, for instance, be able to retain the existing foundation or add to it. You might be able to retain a portion of an existing wall or incorporate part of the old structure into your new design, and thereby sidestep local restrictions on total demolitions.
In historic districts where tear downs are banned, you might also be able to qualify for tax credits by undertaking substantial rehabilitation.
Should I Renovate or Tear Down?
Usually the key factors are the current condition of the house and what you want out of a new house.
Older homes can have severe problems that make them financially unfeasible to repair, such as heavy infestations of mold or pests, extensive water damage undermining the foundation or footings or roof damage from wind or rot. They often have interior layouts difficult to rearrange for modern uses and outmoded components that all need to be replaced — at significant cost — whether you tear the house down or try to renovate it.
Ask yourself: Do I want a home that is energy efficient, from windows to doors to kitchen appliances? Wired for all the sophisticated electronics we use today? With room layouts that make sense for the style of living you want for you and your family? If you can’t get what you want at a reasonable cost by renovating, then demolition and new construction may be your inevitable answer.
How Do I Find Professionals to Help Me Identify a Tear Down Property?
Once you’ve decided on the neighborhood where you want to buy, you can contact several real estate brokerages that are most active in the area. Ask who among the firm’s agents either specializes in or has experience in tear downs or substantial renovations.
To locate potential builders for your project, you can search NewHomeSource.com, which offers the largest collection of builders, new home plans, and communities on the web. You can also contact your local chapter of the National Association of Home Builders for advice or ask your mortgage lender, real estate agent or architect for suggestions, including referrals to design/build firms.
Are There Local Restrictions For Demolishing a House?
You can count on it! Many older, desirable close-in communities have land-use rules and codes intended to protect the existing character of the town or neighborhood. Others have historic preservation districts banning most tear downs or requiring replacement structures to strictly adhere to the predominant architectural size and standards of the neighborhood.
How Much Does it Cost to Tear Down a House?
The cost of tearing down a house depends on many factors. When you decide to demolish a house, financing and rebuilding can get a little more complicated. First, you’ve got the cost of the existing house. Then the demolition expenses. And finally, you need long-term mortgage financing.
Unless you are wealthy and have buckets of cash sitting around, you’re going to need money for the purchase of the tear down. You might, for example, use the proceeds of the sale of your previous house and make the purchase of the tear down property contingent upon that sale. (The sellers of the tear down won’t like it, but they may agree to it.)
Demolition costs vary with the size and location of the tear down property, but generally range anywhere from $8,000 to $15,000. You may be able to recoup most of the demolition expenses by recycling the contents and structural elements of the tear down itself, whether through sale or by tax-deductible donations.
The local professionals you engage to assist you — the real estate agent and the design-build firm — should be able to guide you on financing. Your local community bank may be the source of what you ultimately need — a so-called “construction-to-permanent” loan that provides you funds for the building phase and converts to a long-term mortgage once construction is complete.
Interest rates and other terms can vary widely — these are loan types that banks retain in their own portfolios and consider higher risk than ordinary mortgages, so shopping is essential. If you’re lucky, you will run into a local bank that will do a complete package deal — a single loan transaction, based on the estimated value of the new home after the tear down and construction, with periodic draws to finance the building phase, followed by an automatic permanent long-term mortgage.
What Sort of Local Permits Will I Need?
Most municipalities have rules requiring you — or more likely your builder — to obtain a demolition permit before doing anything.
You also need to contact utilities companies — gas, electric, water — to determine when and how you can disconnect the house you intend to knock down. You should also check with the fire department to determine what sort of inspections or oversight is required prior to demolition. Local government rules may also require inspections for toxic materials inside the house, which is particularly important if the structure dates to the 1960s and earlier, when asbestos was commonly used in ceilings, duct work and flooring.
The bottom line is a tear down can be a viable option for you, but be aware of the potential traps, snares, and costs up front.
Kenneth Harney is a nationally syndicated columnist on real estate for the Washington Post Writers Group. His column, the “Nation’s Housing,” appears in cities across the country and has received numerous professional awards, including multiple Best Column-All Media awards from the National Association of Real Estate Editors and the Consumer Federation of America’s Consumer Media Service Award for “invaluable and unique contributions to the advancement of consumer housing interests.”
Breaking a Lease Early to Buy a Home
Austin
Five stars. All the information I was looking for I found. I have some questions of my own for my situation. My great grandmother passed away and my grandmother now has her house. She already owned it before and still owes 190K. The house has allot of potential if completely remodeled, but that’s what I’m caught up on, the house feels a little cramped and small and will need new appliances paint floor windows etc. I’m going to buy the house and re sell it because of the potential. The property is located out in the county, private, beautiful view, big yards multiple gardens and flower beds and also has a fenced in yard in the back of the property, with a full size shop. So anyway should I completely remodel and update the house? Or should I tear down and rebuild a bigger up-to-date more modern house? What will bring the most value and the most profit when I sell?
Laurie
I can’t seem to find an answer to this question i have which is, I live in a row home that are now historical house. All four row homes are in condemned condition. After demolition, are we able to rebuld it anyway we would l ike it?
Fred Hopkins
Hi Laurie,
Thank you for your questions. For anything in this area, you need to follow all your local laws and be especially considerate of any statute related to a historical home designation. Your city’s zoning office is a great place to start.
elise harrison millar
I am thinking about replacing a old duplex with a house. How do I find the rules with the city I live in?
Stephanie Agledor
Contact the local building and zoning department in your city. Most lots that are zoned duplex are also zoned for single family homes.
John
Ok, I think I have found a place (1200 sq ft) with a great yard and location. I had the house I live in currently (in another city), so I have my old plans(2400 sq ft). Now, I need someone to look at my plans and this current house to tell me IF it is better to tear down, keeping the current foundation (and adding to) and build MY house again or if the current house could be remodeled and added to to create basically my house. And them the cost in both as to which is more economical. I just don’t have the “visionary” aspect to be able to do this. Do I go to an engineer, an architect or just call The Property Brothers? lol
Jamie Garcia
Hi John,
You’ll need to take your plans to your local construction or permitting department to get them approved.
Kevin T.
Hi,
So my wife and I are thinking of tearing down and rebuilding our home. We bought it about 5 years ago, but the house is outdated and needs a lot of fixing. The house was built back in 1923 and is about 950 sq. ft, the lot size is 3,750 Sq. Ft. We really love the yard and location, but would like to rebuild to add more rooms and bathrooms. We currently only have 2 bedrooms and 1 bathroom, but as our family is expanding we want a more livable space. It currently feels like we are cramped and the space is limited. What do you recommend? Do we go to an engineer, an architect, or construction company? We want to weigh in our options so that we can prepare financially.
Fred Hopkins
Hi Kevin,
Congrats on make the decision to expand/rebuild your home. Truth is, the three people you mentioned can be all in the same firm. There will be a lot of research ahead of you for choosing the right firm and coming up with a design that fits your family needs while adhering to local building codes. Best of luck in your search!
Julie Moore
My question is how much do I pay for a tear down?
We want the land. We own the lot next to it but the lots are very small and we would like to buy and turn into one lot.
Is there a calculation to use?
Jamie Garcia
Hi Julie,
You will need to account for both the cost of the house or land you want, plus the cost of demolition. As the article states, demolition costs vary with the size and location of the tear down property, but generally range anywhere from $8,000 to $15,000. Then, you will need to finance the new home you build on the lot. You’ll need to work with your builder to get an accurate estimate of all costs. Then, assuming you don’t have the full amount to pay out of pocket, you’ll need to talk with your lender to get started on obtaining a loan.
Thomas
There is some great information here, thank you! The question i have i can’t seem to find an answer for. My in-laws bought a tiny 1br home on a 1 acre lot. They owe around $150k on the mortgage. My wife and I would like to buy it from them, tear it down, and build a 3br home on the lot. What is the best avenue to go about financing something like this? Also we have $200k in cash for down-payment.
Jamie Garcia
Hi Thomas,
You’ll need to talk to a financial institution about the best way to finance this – it sounds like you have enough cash to buy the home form your in-laws, but you’ll need a loan to finance the cost of tear-down and the cost of building a new home. See the section on “how much does it cost to tear down a house” in this story to get more information before you head to the bank.
Jamie
My parents own almost 6 acres of land with an outdated modular home that is considered ‘fixed and attached’ to the property making it a foundational home. They currently owe $167k but just had an appraisal come in at $420k. My husband and I would like to build a new house on their property, remove the old one and have one whole loan for the entire amount. We do not have any money down, but do qualify for a VA home loan. What are our legal options or where do we start?
Jamie Garcia
Hi Jamie,
You’ll need a construction loan first, then you’ll need to convert it to a home loan. For this, you need to talk to a lender. You can find out more about construction loans here: https://www.newhomesource.com/learn/understand-home-construction-loans/
Then, find a builder in your area to see if they can recommend a destruction company before beginning construction on the new home.
Courtney D
We own a 4000 sq foot home that was built in the 1800s and a two story log cabin was attached to the back of it. It has sat vacate for 10 years. What would be more cost efficient, to tear down the back side of the house (the log cabin part) and leave the two story older part of the home standing and add on a living room/kitchen combo to it (the front part has four larger rooms that we would use for bedrooms and dining) or just remodel the whole house???
Jamie Garcia
Hi Courtney,
You’ll need to talk with a contractor about cost specifics for this type of project. You’ll need someone to come out and look at the home and tell them what you’re envisioning for it, and they’ll be able to give you a better idea of which option will cost less.
Damian C.
Hello. We are looking into either remodeling or rebuilding our current home (was a duplex turned to home 1960’s). It currently sits on a 4 acres lot. The structure of this home is becoming a hassle. Over the years we had encountered many things like moisture from unfinished crawl space to mold creeping in. Outdated electrical, plumbing and layout of this home. It hasn’t been vey functional as the years go by. My question is if we wanted to rebuild. How do we even begin to start this process? The house is not paid off still about 90k into loan. Any suggestions?
Jamie Gonzalez
Hi Damian,
Your comment inspired us to add more tear-down/rebuild articles to our site – I suggest doing a search on newhomesource.com/learn for rebuild or tear-down, or check out articles written by writer Carmen Chai https://www.newhomesource.com/learn/author/carmen-chai/ – thanks for you comment!