All,

Looking for some feedback and discussion from those in real estate and lending.

I am looking at a property that I would do a major renovation plus add square footage. The scope of the renovation will get close to being better off bull dozing and starting a new build from the foundation. The location is what we are after.

The home is about $325K and I plan to add another $3-400K in the renovation. Likely more because we know how renovations go, but it is difficult to price out renovations.

How should I look at this from a financing perspective? I'm sure I can't bull doze a home with a mortgage.

I could pay cash for the home and doze it. I'd be in $325K (plus dozing cost) for just a lot. I would have to do a construction loan for the new build. I'm not sure the appraisal would value the lot at $325K.

The other option is to finance the home at 20% down, then use cash for the renovation. I may need additional financing for the renovation. Do I have to notify the lender I am taking the house down to the studs?

How should I look at this from a lending perspective?

What makes you certain that renovation cost will match or even exceed the acquisition cost?

Is it in a location where a scrap/new build would work?

If in BCS, I do construction and development and would be happy to chat. Didn't check to see if you had stars, if so, PM me.

Appreciate the response. I am far from BCS.

Yes, the location is good. There are many scrap and rebuilds on the street. Several have scraped two or three homes to build a mansion.

I am not certain on the renovation costs. I am wanting to add about 1800SF, which at $200/SF lands about $350K before touching the existing 2,200 SF. I would take it to the studs with new sheathing and brick. It may need new sewer. New plumbing and new HVAC for 4000 SF home lands north of $400K.

If you get a one time close construction/permanent mortgage you can demolish the house after closing.

Agree with jj. Easiest way is one time close construction loan. As long as the lot is paid for and worth at least 20% of the total value.

The problem that you could run into on remodel is ability to live in the home. You would have to ask the lenders exactly what their policies are.

With a one time close you can live in it if that's possible during renovation and the appraisal is as complete so current condition, etc doesn't matter.

That said I've been retired for 7 months but do stay in contact with my former colleagues and don't think that has changed.

I was referring to a standard conventional loan where you rehabilitated with purchase money in the existing structure and then gutted to the studs. Why the one time construction loan would be better for this scenario

I would not be living in the home. It would be gutted to the frame and likely roof removed.

I appreciate the responses. Would I do the one time close instead of a mortgage?

JJ - do you mind sharing some contacts for this type of lending?

That's what I assumed. So the one time construction loan makes sense. Those lenders understand the issues you are facing better than a standard lender. They have dedicated departments to handle the process.

Just make sure the scraped lot is valued at least 20% or more of the total completed value. If not you may have to add cash to the lot as collateral. The lot value is separated from the current improvements on an appraisal

325k sounds like lots of cash for a lot. Is it in Houston or on a lake? If not I'd look for a different lot to build on.
And you will still have to pay a demo company to tear it down with an excavator and haul it off with dump trucks or trailers. Is it on a concrete slab?

I added a Gmail account to my profile. Send me an email with the property location and your contact information and I'll pass that along to someone that can discuss with you.

No way would I attempt that remodel. Thats got, dyeing early from a stress induced heart attack, written all over it. It will take WAAAAYYY longer than expected to get done. And I HATE add-ons. Ive seen way too many that were supposedly done right, end up turning into a leaking/ rotten mess years later. The whole thing is going to put you dealing with way too many people, all trying to work an angle. Guaranteed drama and stress. The contractors that do these jobs will smile and tell you yes all day long and then not do what you ask and leave you with disappointment and regrets.

Just build from scratch and be happy with it being done right and exactly the way you want it.

Reno - limitations of the existing structure - plumbing, slab, framing, floor plan

New build - limitations are your budget

Scrape it.

I see so many folks trying to crowbar their old house into something else, when they could have had a clean slate and done whatever they wanted only limited to trees, building lines and utilities.

Thanks CS, appreciate the input. I probably needed to hear that haha!

I am not trying to get into the real estate flipping game. The property is in a desirable neighborhood and would be my family's primary residence.

That said, I am hoping to get some sweat equity out of the deal if/when we resale.