The first step I'd take is finding a home inspector who is really, really thorough.

You might need an architect or you might just need a design-build construction company. A lot depends on how much you want to change about the house.

Do you like the number of bedrooms & bathrooms it has today? Are they of good size?

Do you like the flow of the house, or would you want to make it more open concept or remove walls? Do you want to move any major functions in the house - like any plumbing in the kitchen, bathrooms, or laundry room?

Is it on a slab? If so, moving plumbing is a LOT more money than if it has a basement.

Knowing you want quality materials is good, but you should also consider what you define as quality. For instance, in a kitchen you could go with IKEA cabinets, stock wood cabinets with plywood construction, or all the way to custom built cabinets of an expensive material (like quarter sawn oak or reclaimed chestnut). Same with counters - even knowing you want granite leaves you open to $40/sf to $200/sf ... depending on the finish & edge profile & rarity of the kind of granite you pick.

If you've had a home inspection & know the asking price is a fair one ... I think the next step is to walk through the house & get a really good idea of what you'd want to change. Look at everything from ceiling to floors (popcorn to linoleum), look at the trim around the windows and the windows themselves. You might find that more of it is quite nice than you initially thought.

If you are looking at new windows, new roof, new HVAC, new doors, new kitchen, new bathrooms, and new flooring all at the same time ... you're probably better off to consider a teardown & build new. It might be 25% more money, but the resale value of a new house is better than that of a newly renovated old house (unless your house has truly unique and beautiful features, like some antique homes, and even then it's a tough sell since most buyers want granite, stainless appliances, and multi-zone HVAC).

It's an exciting opportunity, though!

A rule of thumb is that remodeling with structural changes or additions is 2x as expensive as new construction, roughly $200 sq ft+ to +++ depending on choices. If you are talking about updating systems like plumbing and electrical, and any 40 year old home will need that, that rule comes into play. If you are merely talking about doing from the drywall out, then you are talking decorative finishes only, but that can run into many thousands as well. You can do 3000 square feet of a nice oak floor for 15K or an exotic hardwood for 60K. Same with cabinetry. You can do 10K of stock box store cabinets to 75K of custom cabinetry +. Windows could be 20K for plain vinyl or 100K for argon filled low E wood. New HVAC20K-100K for cheap forced air vs. geothermal. New insulation, 15K to 60K. New eleectrical service 5K for just the panel to 20K for all new wiring in the whole place. And the list could go on an on. You really need a trusted experienced contractor to view the property and make a list of it's needs.

Subtract the land value out of the deal and you'll be left with home value. New construction of a basic home starts at about $100 a square foot, and a custom home about $200 a square foot. You could construct something custom on the property for 600K more or less, so if the reno starts to approach that, and it definitely could depending on what you want, then a teardown makes more sense. Plus, a new 3K square foot home will appraise at significantly more than a 40 year old one.

I had another thought about new construction vs. remodel. Do you NEED 3,000 square feet? If not, building a new house might make more sense. You'd have a tighter structure with less area to heat and cool - your utility bills could be cut by 50% or more, if you built a 2000 sq foot home to live in. And the market for mega-homes is drying up in many parts of the country.

Most houses that age have small kitchens, eating areas and bathrooms, 8-foot ceilings, poor to no insulation, 'heat-exchange' windows, etc.

We were in the same boat twelve years ago. We found our ideal lot in our ideal neighborhood, but it came with a 1950's ranch. We talked about remodeling/gutting. A real estate appraiser pointed out that we'd never recoup our expenses, whereas an all-new house would have market value. We 'overpaid' to get the location and did a teardown. We are very glad to have a tight, new, *valuable* home -- and a repair-free decade IN the house. We had normal building problems, but not the daily 'surprises' you get with remodeling.

Thanks for the helpful information. The house and property could be bought for $400k and yes it does have a basement. I would guess the land value is $300k of that. It is 2ac with a good size pond. The adjoining 2ac lot sold for $270k in 2008 which included a house that was clearly a tear-down. That lot did not have a pond (I love the pond but don't know if it adds or subtracts from the value) and is not nearly as attractive. The owner built a 4k sf all brick ranch and pool so easily over $1m all-in. For my budget I would need to be all-in, $600k. So, I will need to determine if I can do a remodel for $200k which will mean determining priorities and making compromises.

You should be able to do a remodel for 200k, especially if you are not adding space. I am not sure what part of the country you are on, that will make a difference but in New England area you could do nice windows, anderson 400, put forced hot air with central a/c, kitchen, a couple bathrooms and floors for 200k.

I am in the midwest. Chisue makes a good point about 8 ft ceilings etc. our house now has a 10' pour and our finished "basement" is a feature we love. Same for our 9' and 14' ceilings on the first level. Don't think we would be happy with 8' ceilings and would be an impediment to resale value.

2 years ago we found the ideal lot in a really great location where we had specific needs that were hard to meet. It had a small 30 year old house on it. We planned to remodel by enlarging the bedroom, adding a new master bath and various other things.

Once we bought the house I was living in temporarily and it became clear that it really needed more work and I could see that the cost to remodel was going to be high and we would still have a 30 year old house when we were done.

So we decided to demolish and build a new house. We are currently working on our plans for the new house.

A similar house across the street was bought not long after we bought our house and has sat vacant for a year and a half. Just in the past few weeks, a major remodel is starting where they are adding on a 2 story addition to the front of this old 1 story house. I'm sure it will look great but I'm not sure if it is the best economic decision.

Ironically, we are now considering selling the lot and buying an existing house. Yes, this location is great. But the costs between building or remodeling versus the cost to buy existing is just huge right now.

I'm starting to think this property is overpriced. The adjoining lot with two buildable acres sold for $270K -- in 2008, near the top of the market. This lot has less than two buildable acres due to the pond, and existing RE is selling for pennies in many locations.

Could you build on the existing foundation, perhaps adding some crawls? That's what we did. We are part of the growing population of Seniors who want single-level living. For us, the basement is an insulating factor and 'home' to the furnaces and central vac.

We haven't gotten into the pond issue, but you need to know if it's a plus or a minus. Is it a natural feature, or was it created to manage water? What's the water table?
There, now we've downgraded the property enough for you to buy it cheap and do the teardown! LOL

If it is not an architecturally or historically significant house and you can afford a new build, I would strongly consider tearing it down. I say this as a bruised and battered two-time renovator, so I'm admittedly biased. There are always surprises with any project (we've also built from scratch) but with a renovation there are generally a lot MORE surprises and a lot fewer solutions than a new build.

It might be worth a few hundred bucks to have a reputable architect come out and give you an opinion. Just ask what his/her hourly rate is and make it clear you want a consultation. Good luck!

"Don't think we would be happy with 8' ceilings and would be an impediment to resale value."

What is on other houses at the same price point?

I think generally when you get to the $600k price point most have 9' ceilings, large kitchens, large MBR and bath, large closets etc. I haven't actually been in the house yet but should get inside this week. This has 3.5 baths and at 3k sf enough rooom to modify to get most of those features but not the ceiling height or the taller basement. The basement is not full, I am guessing it is 2,500 sf or so. Might be possible to tear down, use the foundation and build a smaller house as someone suggested. Still, the sellers would have to come to the realization,if that is the case, that the house itself is of no value and adjust their pricing to the $300k range. As to the lake I assume it is man-made and guessing no more than 4' deep. Don't know what is involved to maintain but I have never seen anyone ever work on it and I pass by the property frequently.

jwalker678
Your competetion will be a naive young couple who wants the property because they want to live in the house as is and put sweat equity to bring it up with modern amenities. If there are many of those young naive folks in your town, then the house will get sold at a price that reflects that sentiment....

Unfortunately, many do not realize that there is a little or NO value in their old home. My FIL has a home from 1950s which is in its more or less original condition, leaky basement which has eluded his effort to mediate, 8ft ceilings, etc. There is NO value in this LARGE house. The house is around 3500sq ft on a single level which is nice for older people. The lot is 2 ac and swimming pool which makes the lot special. My FIL will not sell this house because the price has come down so much and he feels that he will not get the money that he thinks should get. Anyone that tried to remodel my FILs home would be a fool, IMHO....Eventually, my FIL will pass on and the home will be sold to someone who is too naive or to someone that will tear it down.
Homes are much like cars. There are teatures that get added onto new homes to modernize them. If the homes are too old, then there is no value unless there is intrinsic value to the home because of its architectural and historical value. As the homes get beyond its life expectancy, the value is in the lot... Unfortunately, most homes in America have very little architectural or historical value.

I have been there and done that with the remodel when I was young and naive. If I do anything, I will build new!

I think you make a lot of sense, though this is an established area, not a lot of young families that tend to want newer, children dense subdivisions.

If you scrape a 1962 house off the basement and rebuild on the existing basement, where does that fit in the appraisal scheme - new house or renovated 50-year old house?

We did the teardown/build on existing basement. The basement supported about 2200 sq ft. We added some crawls; house is now 2900 sq ft. It's the same number of rooms and baths, but bigger ones, with 9-foot ceilings (and some higher features), 3-foot doorways, all new and tight.

The assessor dates the house to its original build, 1957. Legally, this was a 'remodel and addition' because we kept the basement and a chimney. In 2000 we didn't even pay a teardown fee.

We did 'overpay' for the lot. A builder would have put a 6000 sq ft house on this acre. We want to live single-level, but we built with a formal staircase to a full-height attic. A future owner can add some dormers for a second floor. The first-floor rooms are large enough to support a larger family that needs additional BRs and baths. Meanwhile, we are not taxed on our 'attic'.

We were the second to teardown/build in this neighborhood. There are a few smaller, older homes left on acre lots. They will become teardowns when the market revives. Neighboring houses are mostly 6000 sq ft and up (up to 12,000) on lots of one to five acres. It's a mix of newer and some large historic homes. It's a 'coveted' neighborhood, in real estate-ese. LOL

Some comments reading this interesting post.

Some of you make it sound like homes are worth nothing after 40 years and should be torn down and rebuilt. I don't get that mentality. It just seems crazy, when you see so many houses that look awesome just by updating finishes and maybe removing a wall or two.

Second, where do these kinds of numbers come from: $100-$200/sf to build new. Really? I don't know where this is but it's certainly not anywhere in the West, and I'd bet that at that price you wouldn't get all the fancy things you're saying all houses need like 9+ foot ceilings etc.

Third, someone made the comment that any home over 40 years old needs all new wiring and plumbing. Again, really? Many people I know live in homes older than 40 years and they've never had to rip out and replace all their plumbing and wiring. What would cause modern copper wiring to wear out in 40 years?

I'm looking at a house I'd like to remodel and I think it could be really cool. The contractors are saying "start fresh, it's not worth it." To build a new house at their price/sf would cost $1.5M including land. The house/land as is costs $500,000. You could spend $500,000 remodeling the house and it would still be $500,000 less than building new. So I must be missing something that explains how this isn't a good idea. Honestly to me it just seems like a mindset more than based on facts. But I will keep looking around and try to understand comments like "all wiring and plumbing needs to be replaced in a 40 year old house."

This was 2011? Why was this even brought back up?

Oh, and Im doing a remodel myself on a 2100sq ft house and will be under $40k for the remodel

Congrats on a whole home remodel for 40K. Most people spend more than that on their kitchen! Of course if you're merely talking decorative things like paint and molding, and maybe refinishing the floors, that's achievable by your average person on that budget. It's all in the definition of "remodel". When structural things, or major home systems are involved, 40K doesn't cover a home's "hidden" systems unless it's completely DIY, which isn't feasible for most people.

Im completely DIY and the house has been gutted. Just installed new windows. Time for the spray foamers to come back out for the walls, then drywall time. $40k for a kitchen is crazy for most houses here in TX unless it is a very expensive home.

It may be old but it is a recurring issue. I have to agree with Gofmiwok in that it seems that sometimes homes are demoed just for being insufficiently McMansionly.

But wiring does often need to be upgraded. We just use more electricity than previous generations and some older homes (like mine from the 1950s) couldn't run an iron and a lightbulb at the same time. And my house's pipes do need to be replaced. Still, it is certainly not a teardown. I'm about to dump a ton of love on it (love=$$$) in remodeling and an addition. While keeping the old bits.

And--the horror--my house has 8 ft. ceilings!!!!