I'm not a frequent commenter here, but thought I'd chip in.

To me, I'd have to look at all the factors. Like, if you have or will have kids, how do the school districts compare? Yes, renovations are more expensive, but it sounds like you really like the first neighborhood, so do you have the budget for it? Is the first neighborhood worth the extra expense? Do you have the time to wait for a renovation? Do you have the time/interest to pick out everything and make all the decisions for a renovation or would you really prefer move-in ready? How will your neighbors in the first location feel about having a new construction home there (like, will it match the neighborhood or will you build a three-story modern in a neighborhood of quaint 1940s houses, like happened in my old neighborhood)? Are these really your only two options? Etc.?

Good luck!

No matter how you decide to proceed, I'd advise sticking with the more desirable location. You are going to be living in this property for several years. In a city/urban location, I have never seen an undesirable location improve without a major re-development of the entire neighborhood. Undesirable locations tend to be come more undesirable with age.

Hey friends. Thanks so much for the helpful info. I agree about the better area. And the houses are a bit further apart so whether the house fits in or not isn't as much of an issue, but the houses are a bit larger there as well.

Does it make more sense to just knock the existing house down? What are typical costs for a 2 story house that's around say 3500 sq ft?

Info: Me and the wife and 2 kids will be living in the house. Maybe a puppy some day :)

Honestly, by asking the question what are typical costs, it shows you have a lot of homework to still do before deciding on either option. Why do I say that? Because there are no typical costs? Are you in a rural area? Big city? Suburban? Is the area real estate market booming?

On Long Island the cost to build new is somewhere between $300-$400 a square foot. Where I'm building near a mid sized city in FL, the cost is between $150-$275 depending on how close to downtown and whether you are building a custom home, a tract home or one where the builder says pick your lot, and here's your choice of houses. In NYC you'll pay between $400-$500 a square foot just for renovation.

Secondly are you currently living in a house or is this going to be your first house? I ask because first time home buyers tend to not really know how a house works in terms of flow and good function. Bigger is not necessarily better, unless you're only trying to impress the neighbors. I find too many first time homebuyers (and not only first timers) get dazzled by the bells and whistles and miss things like how the house functions.

Assuming you're living in a house already and have a good sense of flow, the question then becomes whether to build or renovate. Why are you immediately thinking of tearing down a house in the neighborhood you want to live in? Many older homes just need some basic fixing up to be wonderful homes. Personally if the bones of a house are good, I prefer to renovate. I wish I could find a home I could renovate in my neighborhood.

As for costs, a lot depends on what needs to be done in a reno. If you need to replace bathrooms and kitchen, but the main rooms only need to be refreshed, that's going to cost a lot less than if the whole house needs to be gutted to the studs or the foundation needs to be repaired. So you see there is too much info missing to give you an idea of what it will cost, etc.

Also what is your reason for not buying a house that is in move in condition in your neighborhood? Because in the end, whether you reno or you knock down and build, it will wind up costing you the same, or in the case of a new build, probably most likely more than comparable homes in the neighborhood.

If you build, whatever the cost comes in from the builder to start, add 20% to that cost. If you can't afford that, don't build.

Lastly, might I suggest an excellent book to start. The Not So Big House by Sarah Susanka. You may find smaller is actually better. :)

My family buys houses that are in nice areas outside the cities and towns. We fix them up. It's a lot of painting, pudding, spackling and so on. But the last house we bought needed a lot of clean up. 12-15 loads to the dump. Fresh paint, molding around the doors, insulation, a garage door, drylock the basement, new breaker box, furnace repairs and carpet. We bought the house for 10k spent about 20k in clean up and repairs. That house is listed for about 140k. We do it for profit but if you have the money and patience. The fixer upper is the best option in most areas. If you go this route look for a house no one wants. It looks so bad it needs to be demolished. You also want to find one that is really close to what you want. Oh and be patient until you find what you want then start negotiating asap don't delay. Write out a contract and give them earnest money to make the contract viable. Where we live 100 is enough. LOCATION LOCATION LOCATION. That is the most important thing.

The people who are telling you that it is cheaper to tear down a house and build a new one than to renovate an existing house must have a great deal more information than we have. It all depends on the quality and prices of the existing houses in the area you like.

I suggest you not try to make decisions from anecdotal rules of thumb and hire a design professional to guide you. I've visited many houses with prospective homeowners and advised them during the visit what would be the best approach for that property. Everything hinges on the house. And don't believe what a realtor tells you; this is not what they do for a living.