Anyone torn down their own home?

[BigRedBeta]

Long story short, we're outgrowing our starter home, love our neighborhood for many reasons, and would like to stay where we are. Area has blown up since we moved in, and property values have shot up (probably could sell for >10% of what we paid).

The more straightforward option is obvious: take the money and run - either to a new area or a house within our neighborhood.

Problem is, we want to stay in the area but are getting priced out of houses that would fit our needs at this point.

Financially, I have two and half major problems 1) I did a physician mortgage coming out of fellowship and financed 100% of the purchase price so I have limited equity 2) we may need to do IVF for baby #2, so what savings I do have is earmarked for that instead of a down payment, 2.5) I'm in a small field (PICU) and about 18 months away from a golden handcuffs situation where very few if any locations, will be able to match the income I'll be making. Once I get to that point, this will be easier...but that's not the case yet.

So now I'm considering other options

• Do an addition to bridge us to the point where the finances work out better - but I hate the idea of spending money essentially twice.
• Knock down most of the house and complete it as a "renovation" - might be sort of a similar problem as above, and more importantly, house was built in 1948, and the foundation can't support much beyond what's already there, so I wonder if there is an extra expense for the extra complication
• Tear the whole thing down.

Because this isn't super common, the stuff I've found online about the financing is not great, and I've heard that there are a lot of banks (even the major ones) that won't touch this sort of thing.

If anyone has any experience would love to hear it.

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[RangerBob]

Tearing down a home is a lot of work and time. You'd have to live somewhere for quite a while.

Maybe it's because I grew up in the Bay Area, but I don't consider a 10% increase in a home value all that much when my childhood home shot up 10x it's original price. Tearing down a home and building a new one is very expensive. My parents struggled with the same problem (they had 4 kids and were in a 3bd home). Prices had gone up quite a bit by then and they couldn't afford to move (they looked and looked), so eventually they decided to do an addition--they added a master bedroom and made the kitchen bigger. We stayed in that home until all of us graduated high school.

Foundations can support quite a bit--are you sure your home can't support more? If not, you could lay more foundation if you have space laterally (if you're in the Midwest where basements are common, just add it as a slab foundation--no need to spend all that money on excavating a new basement).

Still, it's hard to imagine a total knock-down being cheaper than buying a bigger home in the same neighborhood.

Yes, financing will probably be quite tough because of your limited equity. If I were in your shoes I'd make your current place work. My wife and I owned a 750sq ft 2bd/1ba home in residency and thought it would be more than adequate to support two small kids for a few years. The odds are you and your family can go another 18 months in a less-than-ideal space until you better know your financial situation.

I think you're definitely doing the right thing by using your savings for IVF (if it's needed). Family will always bring you move happiness than a home.

 

[BigRedBeta]

Tearing down a home is a lot of work and time. You'd have to live somewhere for quite a while.

Maybe it's because I grew up in the Bay Area, but I don't consider a 10% increase in a home value all that much when my childhood home shot up 10x it's original price. Tearing down a home and building a new one is very expensive. My parents struggled with the same problem (they had 4 kids and were in a 3bd home). Prices had gone up quite a bit by then and they couldn't afford to move (they looked and looked), so eventually they decided to do an addition--they added a master bedroom and made the kitchen bigger. We stayed in that home until all of us graduated high school.

Foundations can support quite a bit--are you sure your home can't support more? If not, you could lay more foundation if you have space laterally (if you're in the Midwest where basements are common, just add it as a slab foundation--no need to spend all that money on excavating a new basement).

Still, it's hard to imagine a total knock-down being cheaper than buying a bigger home in the same neighborhood.

Yes, financing will probably be quite tough because of your limited equity. If I were in your shoes I'd make your current place work. My wife and I owned a 750sq ft 2bd/1ba home in residency and thought it would be more than adequate to support two small kids for a few years. The odds are you and your family can go another 18 months in a less-than-ideal space until you better know your financial situation.

I think you're definitely doing the right thing by using your savings for IVF (if it's needed). Family will always bring you move happiness than a home.

More than 10% in two years with zero significant upgrades? That's not something I'd consider common. My parents have had the same home since 1983 and it's value has only gone up 4x - hardly more than inflation over the same timeframe.

Have had one builder tell us that couldn't go vertical based upon our foundation, but am looking to speak to several others - harder to find builders willing to do that sort of project though.

As far as the in-the-neighborhood move vs knock down cost comparison, the idea is this: Builders are buying lots in our neighborhood for more than we paid for our home in order to teardown the existing home and build new. This is driving up the comps of the bigger homes with more bedrooms, as well as the price per square foot. My thought is, that building costs are relatively fixed - take the same house and move it to an exurb in my city and what goes for $900k in my neighborhood is only $550k (or less) somewhere else. Obviously you can get nicer fixtures and the like, but at some point there has to be a ceiling on the building costs/sq ft. I get that the bank isn't going to let me get away with just financing the construction costs and the supposed lot costs and that the mortgage will reflect an amount at least somewhat representative of what it would get on the open market, but I figure there might be enough wiggle room between that market value and what my new mortgage would be that it would be worth the challenges/stress.

 

[redfish955]

I would not tear it down. I would look for a similar home that has room in the yard for a 500 square foot one story wing or 1000 square foot two story wing. I would imagine building up would move you out of your home for a while where as a side addition would keep you there.

 

[RangerBob]

More than 10% in two years with zero significant upgrades? That's not something I'd consider common. My parents have had the same home since 1983 and it's value has only gone up 4x - hardly more than inflation over the same timeframe.

Have had one builder tell us that couldn't go vertical based upon our foundation, but am looking to speak to several others - harder to find builders willing to do that sort of project though.

As far as the in-the-neighborhood move vs knock down cost comparison, the idea is this: Builders are buying lots in our neighborhood for more than we paid for our home in order to teardown the existing home and build new. This is driving up the comps of the bigger homes with more bedrooms, as well as the price per square foot. My thought is, that building costs are relatively fixed - take the same house and move it to an exurb in my city and what goes for $900k in my neighborhood is only $550k (or less) somewhere else. Obviously you can get nicer fixtures and the like, but at some point there has to be a ceiling on the building costs/sq ft. I get that the bank isn't going to let me get away with just financing the construction costs and the supposed lot costs and that the mortgage will reflect an amount at least somewhat representative of what it would get on the open market, but I figure there might be enough wiggle room between that market value and what my new mortgage would be that it would be worth the challenges/stress.

10% in two years is pretty good.

Still, it's a lot of money to demolish a home and rebuild it. You may as well get some bids, but I think the financing, if you can get it, won't be very favorable. I also don't think you'll come out ahead financially tearing it down vs buying a larger home. But bids cost nothing, so it doesn't hurt to get them.

If you do go ahead, go with a contractor you know does good work and will use quality subcontractors. Don't just go with the low-ball bidder. In a worst case scenario, you could end up taking a huge loan, renting another home for a year, and then have the contractor royally screw up/walk out and you're left with a hole in the ground (or worse, a partially completed home exposed to the elements).