Renovation or Demolition: How to Get the Most Out of Your New Property Investment

Explore how to choose between renovation and demolition for your new property investment.
Matias Daroch  |  January 11, 2022  |    |  

In South Florida, there are plenty of opportunities to turn a real estate investment into a great source of income, particularly with existing properties. Any time you purchase a residential property to rent or sell, you will find yourself with a decision to make: should you renovate the home or demolish it?

Renovation presents you with a unique opportunity to work with what you have in order to create a better space for rent or sale. Single-family residences in Miami can be candidates for renovation, but sometimes demolishing the home and building an entirely new home presents a more cost-effective and beneficial opportunity instead. In this article, we will explore how you can determine if you should refurbish or demolish your new investment property.

Consider the Legality of Demolishing the Property

Believe it or not, Florida has some fairly specific laws regarding demolishing property—and some properties are actually legally protected. You might assume that it would be obvious which homes are protected, but that isn’t always the case. In fact, Miami is known to have a fair amount of designated historic spaces. These spaces will not allow you to fully demolish a home.

Beyond historic spaces, other residential areas have additional requirements that can influence how you will approach demolishing the home. There are instances where you will require additional permits or waivers to legally demolish your home. Knowing the laws here is very important to avoid additional costs and legal fees.

Determine the Scope of the Remodel

Every single-family residential property in Florida requires different levels of renovation. These renovations might be dictated based on the age of the property, the style of the homes being made at the time, and improvements that will help to significantly increase the home’s value.

Understanding just how much work it will take to renovate the property that you purchase will help you to determine whether or not you should choose to demolish and build a new home instead of just renovating the original property. You might be surprised to learn that with a lot of renovations, the cost is not always worth the final product. Consider whether or not you will add more rooms or bathrooms, invest in extensions or height changes, or change the current interior layout in any way. These changes can take a significant amount of time and money.

Find Out if the Property is in a Flood Zone—and What This Means

It is not a secret that Florida comes with significant flood risks. Heavy rains, storms, and hurricanes can all put Miami homes at risk—and they can force additional costs that might change the way that you view your property. Given the added risk, FEMA has laid out certain requirements that are important for consideration with your renovation.

Understanding The Expensive FEMA 50% RuleThe FEMA 50% rule requires you to make accommodations any time that you make a significant improvement, which is considered 50% of the value of the house. When this occurs, the property must be modified so it is above the current FEMA base flood elevation. In a lot of cases, this can outright kill a project because it adds an additional expense.

Be Realistic About the Overall Costs of Renovation and Building Costs

A small renovation can come at an affordable price, but significant renovations can come with a much higher cost—a lot of the time, the cost is simply not worth it. The final cost of the renovation can often go well over the cost of demolishing and rebuilding a property, making it a less favorable option.

Eventually, you will find that it is better to simply tear everything down and start fresh. It is also important to be aware that when you start major renovations, there is no real guarantee of what the final cost will be. Knowing this going in can save you from some unexpected changes, but it also means it is very important to consider if a renovation is truly worth it.

Demolition over renovation. MIK Architecture.
Photo by Gene Gallin on Unplash

Do Your Due Diligence in the Market

Being successful with any major project always means doing your due diligence to prepare for it in advance. There are a few different considerations when it comes to doing appropriate levels of due diligence. First, you will want to look at what is being offered in the market. Consider the homes that are successfully selling in the area and what this means for you.

How many bedrooms do they have? How many bathrooms are considered normal? Do the homes commonly have garages? More importantly, what are homeowners actively looking for?

When conducting your research, remember that it is very common for price points to differ depending on whether a home is modern or older. Carefully consider the answers to these questions to determine what kind of home you want to buy—or what changes need to be made in order to rent or sell at a later time.

Learn What You Need to Know About Renting Property and Obtaining Permits

Different permits can be required when it comes to renovations and new construction. With that being said, you might be able to rent out the property during different stages of the process. Though the state of Florida does not allow rentals during the actual renovation process, you can often rent out the property during the permitting process to ensure that you don’t miss out on more revenue than necessary.

Permitting often takes longer than investors expect, so there is plenty of potential for rental agreements that cover a good amount of time and bring in desirable income. Miami residents want homes that are turnkey ready, which means that it is often better to wait until the space is perfect and ready for them to move in on day one!

The Takeaway

With the warm weather and sunshine that Florida offers, it isn’t surprising that so many people are looking to move to the area. Whether Floridians are transitioning from Orlando to Miami or future Floridians are looking to move in from other states, they will need places to live, and there is a growing interest in rentals and property purchases throughout the state. Before you commit to renovating, be certain to run the numbers and ask yourself if it might not be a better idea to demolish the property and build something brand new instead.

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Matias Daroch

I came to the US as a Chilean Architect and developer wanting to invest in residential projects. Soon, I found myself learning zoning and building codes in-depth, and understanding them better to maximize my return on investment. Not very long after, I began working and studying until I got my architectural license to practice in the US, and founded MIK Architecture to help other developers get more value for their projects.