Even if a buyer is planning on leveling the house they still have to pay for the house, even if they don't want it.
I think my lot is worth about 400K. The re-build cost of the house is about 500K according to my home insurance policy. I bought the house for 603K. I'm going to try to stop myself at 47K for rehab costs. When done, it should be worth about 800K to 900K.
Question - how will a 47K reno increase the value of your house by 50%? Genuinely curious here. I had always read that renos almost never increase the value of the property more than the cost of the reno.
I plan to be all-in at 650K. When done, I think it will be worth 800K to 900K. Let's take the middle at 850K. 650K to 850K is a 31% increase, not 50%. I am achieving the 31% increase in value mainly through sweat equity.
This is not a typical deal. I was looking for a good deal and it took me 18 months to find it. House was listed for 549K. I bid 603K. There were 9 offers and I was the 2nd highest. Highest offer fell through and I got it. House appraised "as is" for 615K.
Real estate professionals that use the BRRR strategy aim for a 25% to 30% increase in value after rehab. If achieved they can refinance and pull all of their cash out of the house and do it again. Rehabbing strategies are going to vary based on the local area.
One of the main guys on biggerpockets buys 2 bedroom homes in Florida with a screened in porch. He then converts the porch into a 3rd bedroom. He gets 25% increase in value with hiring the work out. I am doing most of the work myself (sweat equity), which is part of the reason I am able to get to 31%.
The house last sold for 547K in 2003. It was a foreclosure with a remaining balance of 882K. The previous owner must have re-financed it at some point and it probably appraised for 900K to 950K, to be consistent with a remaining balance of 882K. The previous owner was in a wheelchair and let the house go into disrepair. With no chance of selling for 882K in the current condition, the house went into foreclosure.
I am fixing it up and getting it back into it's original condition. The house has been neglected for about 4 years, but not technically damaged. There is a small difference.