When does buying a house and tearing it down make economic sense?

Builders have a guide for estimating whether a teardown will pay off. Generally, the cost of the land must be one-third of the cost of the final sales price of the house.

For instance, if the old home and the land it is on can be acquired for $400,000 and the new house can be sold for $1.2 million, then the builder can spend $600,000 or $200 per square foot on a 3,000 square foot home and still cover miscellaneous expenses and make a profit.

Home owners who are contemplating buying a teardown and commissioning a custom-built home should keep this formula in mind as they consider whether the proposition is realistic, experts say.

Source: ThinkGlink.com, Ilyce Glink (03/01/08)

Bennington VT, Buying

Reprinted from REALTOR® Magazine Online, March 3, 2008 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2008. All rights reserved.

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