Tuesday, September 20, 2005

Teardown Housing Becoming Larger Option for Homeowners

When does a house outlive its use and is better torn down than repaired? This question is creating controversy across the country where a shortage in the housing pool has forced this type of infill development.

A teardown is a property that is purchased with a house and then the house is demolished, followed by the construction of a newer, bigger, hopefully, better home. To the new homeowner, the teardown provides an established neighborhood feel in a new home property. In addition, teardowns become more popular in a tight market where land and homes are scarce.

Because the home buyer is purchasing a property at its peak value, it's not an inexpensive venture, either. While the buyer has purchased what is usually a perfectly good house at market price, now he has to absorb the cost of demolition and building a completely new home. One of the most expensive teardowns occurred in Westport, Connecticut earlier this year at the price of $14.6 million. The website keeps track of the Teardown of the Down, which logs the purchasing and tearing down of Westport's aging housing pool.

The teardown phenomenon has even launched a sub-market in the real estate industry where companies establish themselves as go betweens for builders seeking re-buildable lots and buyers who want a teardown property.

So, when should you consider tearing down instead of rehabbing? That was the question I received from a homeowner who had moved into a property that sounded like it needed to be torn down. His list of defects included:

Sagging roof from 3 layers of shingles

Flooding crawl space

Electrical safety hazards throughout

Items that keep creeping up the more we look
The owner is estimating that it will cost about $90,000 to fix up a house on which he already owes $150,000 and that is worth $260,000. Meanwhile, he's priced a modular bi-level home for $125,000 -- but that doesn't include plumbing, electrical and sewer hookup.

Thus, he can either put in an additional $90K or place a new house on the lot and owe more than what the property is worth today, hoping for growth in the equity over the next few years. As you can see from his situation, a teardown could be either a solution or bigger problem. It can also come down to being plainly a financial decision.

One of the most controversial issues that faces local jurisdictions is in the area of urban renewal and how a community's historic character will change with the influx of infill development. Some local governments have established infill surveys or analyses sheets that look at each proposed project to determine its viability and ultimately its approval.

If you're looking to carry out a teardown, your local jurisdiction may have criteria that must be met, such as the city of Davis, California. The municipality's Infill Guidelines, Consistency Analysis report asks questions such as:

Does the project:

Contribute to the development of complete and integrated neighborhoods?

Contribute to a mix of uses in the neighborhood?

Contribute to the variety of housing types, densities, prices and rents, etc.?

Enhance and not erode the existing neighborhood character (this is a real big factor.)?

Create a compatible use with the adjacent community?
The city's website has a really cool that documents with Flash animation the growth of the city over the last 90-plus years.

As communities move forward with land limitations for development, the concept of infill redevelopment will become more prominent. Citizens/homeowners will need to be more aware of the ins and outs, as well as pluses and minuses of this type development as it creeps into our neighborhoods and changes the way and look of how we live.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog. Real Estate News and Advice

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