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Tearing Down a House: When to Start Over

Sometimes in real estate, starting from scratch might make the most sense.

When does it make sense just to tear down an old house?

Say you're driving around, looking at open houses in an upscale neighborhood that you'd badly like to buy into. You find a quaint, old two-bedroom surrounded by modern 4,000 and 5,000 square-foot homes that's the right price and fits the old real estate axiom: "Always buy the least expensive home on the block."

But when you walk inside, the agent greets you with a sheet showing the dimensions of the lot and the news that "it's a teardown."

Maybe. But what if you're more interested in preserving the look of the old architecture than building out a McMansion to the property lines? What if you don't want to dump a few truckloads of wood and drywall into the local landfill, and would rather put off a major rebuilding job until a few years down the road?

Bottom line: How do you figure out when you should remodel, and when you should tear down and start over?

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"There's never been a set formula, you have to take all the factors into consideration and crunch them down to see what works best for you," says Jason Gideon of Advanced Designs LLC in Clinton, Iowa, which designs and builds custom homes throughout the Midwest.

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Your first step is probably to get a second, third and maybe a fourth opinion about what should be done to the house. A home inspector with no dog in the fight (he's not going to be hunting for a contract to build the new home) can give you a take on the present home's overall condition and what it will cost to fix it up. A realtor can give you an idea of the home's value fixed up compared to a new structure on the lot. An architect can give you some ideas for a new house and also how a remodeled structure could work.

"You see these types of homes sold by the original owners, good people who've lived in them and raised their families," says Tom Brennan, a San Diego real estate agent. "During the time they've owned the home, the area around them has become more upscale and these huge houses are built around them. But they're retired and they don't have the budget or the interest in getting their house wired for home theater or adding a pool. So it's up to you if you buy it."

One key factor that needs to be added into the equation is how you would upgrade an older home's energy rating. A house built during the 1950s or earlier was likely put up with insulation that's now sagging and disintegrating inside the walls. Old windows are probably drafty and allow in too much ultraviolet light. Then, there are the appliance upgrades.

"I've seen some old homes with these nasty oil-burning furnaces from the 1930s, so you may be looking at a full furnace and air conditioner replacement right away," says Gideon. "Then you've got to possibly add new wiring and maybe even new plumbing."

If $100,000 will bring the old house up to a level where it's modern and efficient enough to live in, and the cost to build your dream home is $200,000, the decision seems like a no-brainer. If the figures are closer however, that's where it gets tough.

"If it's almost a wash, I always go for the new construction," says Gideon. "It's like the choice between buying an old car and fixing it up and buying a brand new one, you'll run into fewer problems with the newer house."

If you decide to tear down, there are "greener" options. There are many salvage companies that will pay for your old home's unique cabinets, finish work, joists or flooring.

You can even offer your home to a "mover." Typically the house is sold for a minimal amount (sometimes as low as $1), and the new owner pays for the moving costs to a new lot, which can run anywhere from $5,000 to $100,000 depending on the distance and difficulty of the move.