Resale of Homes is Improving. Now Remodel or Tear Down

With the first time home buyer Federal Tax Incentive coming closer to the end - sales have buckled down and started to fall into place. The majority are still bank owned type properties but some well priced traditional homes have also started to make their way through the marketplace.

What is exciting is the "new life" that is going back into some properties that really need the attention. Recently we had one on our block that sold for less than $200k (average is $280-350k). This home was owned by someone out of the state so it sat vacant, unattended which resulted in a waterline break after a heavy freeze. The home had mold and overall water damaged. Being a less favorable floorplan but in a great neighborhood - it took the lower price to finally find a buyer.

At first we all expected the home to be demolished and a better floorplan design to be built on the lot. Instead the new owners stripped it out and worked within the framework that existed. We did a similar remodel back in the late 1990's. The benefit of this was we redesigned the interior space and with basic refinishing kept the taxes from moving sky high as they would have for new construction and if we would added an addition to the home (we switched a porch for a porch etc). The only disadvantage to this is future resale - the market data has to show that it was still built on the original date which may have been 20 to 30 years ago. But for a great neighborhood where you otherwise may not be able to afford to live.... this is another great alternative.

If you decide to invest in such a property make sure that your financing company will allow you to purchase a distressed home or at least what meets their qualification level. 2nd, see if your financing has a special incentive program for renovation funds. Several do offer this type of special financing where they'll allow a loan for renovations knowing that when it is done the value of these restoration activities will bring the value up and be worth it to them for financing the loan. 3rd, check with your city building department regarding fees and the procedures for doing your restoration or does it make more sense to tear down and start over? Weigh the two ideas against each other and based on what you know about the community, how long you plan to live there, one idea may stand out as the clear winner over the other.