A lot of people don’t understand what I do. I take old apartment buildings that are in really nasty shape and, with a little love, bring them back to life. In the past I have dealt with buildings that were boarded up and had mushrooms, mold, bugs, asbestos, fire damage or water damage. When you walk into them in that condition they are really disgusting and the smell is often atrocious.
People often ask, “Why? Why wouldn’t you just knock it down and rebuild?” I have a 24 year old nephew that has helped with the demolition work on a few of my buildings. He appreciates the money he earns but doesn’t get it. He always thinks I should raze the building and start from scratch.
There are a few criteria in the decision to tear down or simply renovate. The most important of which is the condition of the building itself. You have to be able to look past the surface items like flooring, cabinetry, paint & drywall and focus on the ‘bones’ of the building. This includes the condition of the foundation, the roof, exterior walls and floor & ceiling joists.
Quite often the building looks a whole lot worse that it is. You can throw out the compromised carpet / hardwood, cut out moldy or wet drywall, remediate asbestos and replace fire damaged wall studs. Once you get the nasty out of the house it is then relatively easy to re-drywall, re-paint and put in new flooring and fixtures.
However, if the foundation, roofing or wall structure is compromised; then that, obviously, is a lot more serious. Are the problems fixable? Are they beyond repair? Will the cost to repair them be too prohibitive? If the answer to either of those last two questions is “Yes” then the decision is made for you. You have no choice but to demolish and rebuild.
If the building is repairable but at great cost then you have to do a cost benefit analysis to see which scenario – rebuild vs. repair – makes more sense. Remember in the “tear down and rebuild” option analysis to include the demolition costs, costs for architects and engineers, city fees and the time it will take you to maneuver a new building development through your local municipality and then actually rebuild.
The age of the building also factors into the decision. Really old buildings used much different building materials than we have now. I have owned buildings that used newspaper in the walls as insulation and that still had the old style knob & tube or fuse electrical system as opposed to the modern breaker system. Cast iron or galvanized plumbing pipes or aluminum electrical wiring are extremely expensive to replace. Sometimes it is hard to finance or arrange insurance for your buildings if they have these older materials.
On the other hand you can sometimes buy these buildings at such a discount because they have these issues that it makes it well worthwhile financially. You can also sometimes buy the property for less because the seller feels the property is worth land value only. If you can see a way to bring it back to life inexpensively you can do quite well.
I once bought a 100 year old boarding house for land value. The seller and her realtor expected any buyer to just tear it down. (A boarding house is an apartment building where the tenants share a common bathroom or kitchen.) The building had 5 suites without a bathroom plus a his and hers bathroom on each floor. The hallway was very wide. So wide in fact, that I was able to cut it in half and turn that extra space into separate bathrooms for 3 of the suites.
I then joined the two existing bathrooms with the other two units and ended up with 5 self-sufficient suites on each floor. In essence, I turned a boarding house into a true apartment building. It turned out to be one of my most profitable investments to date. Creativity is very important when renovating these types of properties.
In general, you want to avoid replacing as much of the old, obsolete items as possible as long as they still work. You want to avoid going into the wall because what you might find will often lead to great costs. Check with your local building code and municipality to see what you have to fix. You may be required to bring things up to code. An example of this might be when you are required to install a new sprinkler system in an old apartment building. Often, though, these items are grandfathered, meaning you can leave things as they are. All of these types of things have to be factored in to the analysis of keeping and renovating the building.
Each property is different and there are no set rules. If the building is physically unsafe or can’t be repaired then you have to tear down and rebuild. Usually it is not that cut and dried. You have to calculate the costs on both options to see what is the highest and best return of the final product. Which solution will give you the best return for the least amount of effort and time?
Trust me I don’t renovate because I love old buildings. It is simply often the better option. As I mentioned before things often look much worse than they are. By knowing what to replace and what not to you can keep your costs down. You also usually spend much less time renovating than you would by a) demolishing the original building b) going through the design / permit stage and c) building a new better building.
Read more about this in Comparing Real Estate Strategies