Reply to How do teardowns work, and do they really 'work'?

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[quote=Anonymous]We bought an old house (circa 1920) on a decent sized lot with the intention to build.  The financial aspect was much more complicated than we imagined (and we're not first-time buyers).  A regular mortgage will not work in a lot of these cases b/c the mortgage is based in part on the value of the structure -- in every standard mortgage contract, there is a clause about not causing harm to the collateral for the financing, essentially prohibiting you from knocking the house down.

We ended up buying with a construction loan -- but we had to have the builder, floor plans, and financing all in place in short order.  The construction loan is only for one year, at which time the house better be built, or you're not going to be able to convert it to a regular mortgage.  Also I believe we had to put 25% down for the construction loan, vice the usual 20% for a regular loan.

All in all, it was a painful process, but worth it in the end.  With the cost of the land and construction, we're probably in it for about $1.3m but comps here are going for $1.5m, so we're still coming out ahead.  Most of the knock downs nearby are being rebuilt with larger houses than we built, so we could never afford the $1.8m price tags of any of the properties built at the same time as ours.[/quote]

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