Financing a purchase, teardown and rebuild of a 2-family in Newton?

Asked by katharinecmurphy, 02460 Fri Aug 31, 2012

My husband and I are considering purchasing his late grandfather's 2-family home with his sister. All three of us are first-time homebuyers, and we have about $60-70k saved up. The home is a 2-family already (first floor for tenants, and 2nd/3rd floor was where their grandfather lived), and if we rebuilt it we would build it as a side-by-side 2 family. It was built in 1880, has a leaky/moldy stone foundation, asbestos siding, lead paint and hasn't been updated since the 70s. Oh and the 2nd/3rd floor plumbing doesn't work so we couldn't even really live on those levels.

My question is about financing -- we want to purchase it (probably for around $550k). We then want to tear it down ($30k) and rebuild (at least $650k if not more). How do we finance this? We only have 10% down for the initial purchase, and then we would need a loan to cover all of the construction. And we would want to start construction pretty immediately after purchase.

Any advice or similar situations? Help please!

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Louis Wolfs…, Agent, Needham, MA
Sat Sep 1, 2012

If the existing home is over 50 years old you will need to get the historic commission to sign off on it prior to being able to tear it down. If they deem it historic and it is not in a historic district it you may have to wait 1 year to tear it down.

Does the zoning allow for a two family dwelliing??? Just because there is a 2 family there now, it may be a pre-existing non conforming use that may have to be brought up to todays conforming use.

Asbestos will have to be removed prior to tearing the home down by a licensed mitigator


1. Go to inspectional services at City Hall to confirm you can do as you want - questions would be zoning and FAR allow it

2. Check with and get forms from Historic commission & conservation if any is near or around it.
Tree ordinance will have to be adhered to also.

3. Price on asbestos removal - DONT just assume it is only on the exterior walls - boiler-boiler lining? Pipes? Window chaulking? Plaster? Vinyl flooring? Glue behind flooring? etc

4. Attorney - let me know I have some great ones that know Newton inside out.

5. Certified instrument survey will be required. You will also need to keep all drainage on site and need to show it on plans as well.

6. Building Plans - you will most likely need a architect even with store bought plans.

7. Are you going to over see it or have a contractor? Either way the bank is going to want to see breakdown of construction costs.

8. Bank go to Village Bank - they are a local bank that holds loans and knows the market. They will tell you immediately the likely hood of the financing of your project.

Good luck with your project.
1 vote
Heath Coker, Agent, Falmouth, MA
Thu Sep 6, 2012
Hire an appraiser. Have the estate hire an appraiser. Sometimes the average value is used in estate sales/purchases. Ask the appraiser what your finished home will be valued at. You will then know - or have a much better idea - about whether your numbers are good or not. Taking on a project with all the parts that the one you described has, it quite a task for first timers.

Since you are tearing down the house, it must not have memories attached to it. What could you buy in Newton for the money you are talking about spending that is already done and without the headaches? S e r i o u s l y compare that with the time and effort that the project will take - not to mention the school of hard knocks that you will have to graduate from.

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1 vote
Territory.c…, Agent, MA,
Mon Sep 3, 2012
I am worried you might be over paying for this property. One of the most important steps is making sure you are getting the best value so you should do some hard research of comparable sales in the area. This will tell you current value of the tear down and future value of the new multi.

The answer below outlines a good finance option however it appears the first thing you should do is sit down with a real estate agent to discuss value, an accountant to discuss your current financial position (and whether a project this big make sense for you short/long term) and a lender to talk about your financing options. You will need 2 different loans for each phase of the project.


Good luck!
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1 vote
Michelle Lane, Agent, Chestnut Hill, MA
Sun Sep 2, 2012
First, I must agree with the other agents here. This does not seem like a viable scenario. $550K sounds high for a property you are going to tear down. A builder in Newton would not normally pay that for a piece of land. They would have to be able to build and sell something that is valued no less than 3x what they paid for the land. You don't say if you plan to live in it or sell it. If you are planning to sell it, you would have to get at least $750K for each unit. And, as pointed out, you could have to wait one year to do that tear down.

Unlike a builder, you are doing this on a shoestring budget, so getting the mortgage will not be easy.

With that said, the type of mortgage you are looking for is an FHA 203B loan, otherwise known as a rehab loan (link below). The purpose of this loan is to rehab a property though. Not sure they would lend on a tear town. So check on that first. You could go to to look for FHA lenders.

Do your research and think it through based on your goals. Good Luck!
1 vote
Kevin Vitali, Agent, Tewksbury, MA
Sat Sep 1, 2012
Some things to consider....

First off can you justify a finished price of %1,250,000?
You forgot the cost of approval, development, design... which could run upwards of 70K
Can you qualify to carry a mortgage of the same?
Will the town allow you to do what you want to do?

Sit down with a local bank, before you do all of the leg work to see if it is even feasible to get financed for such. My guess is 10% down will not allow you to do what you want to do unless you have substantial incomes.
1 vote
Preservation…, Agent, Newton, MA
Fri Aug 31, 2012
Katharine, sounds like a major undertaking. I am not a lender or mortgage broker, but I do advise on a lot of such projects as a realtor, and have done some projects also. I think you are biting off a lot for your first home purchase. Many factors to consider. If you do knock it down, is there enough land to actually build the size house you want? Knock downs brings you right into modern zoning and codes and its pretty tight in Newton right now. Your pricing seems OK, but you'll be paying retail for construction and depending on finish it could quickly get to $200/square foot, which would be two units of 1600 sf or so.

On financing, you will need a loan to buy and a loan to construct. If you have never owned an income property and had experience as a landlord, many lenders will shy away. If you've never build anything, many lenders will shy away. Interest rates can be pretty high on the construction loan as well.

Newton's a great place to build a future. I hope you can work it out. Need to find a creative lender or local bank to take a bit of a gamble and you'll have to turn them into believers first. Good luck.
1 vote
Kenzo Tatsuno, Agent, Waltham, MA
Fri Aug 31, 2012
Lots going on here, but very exciting. You may be able to get creative with the financing but it could be difficult. first, is the home on the market? most lenders are gone for the holiday until Tuesday but please contact me to discuss. also think about the current value and potential future best use. you may also want to consider converting to condos.
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1 vote
Louis Wolfs…, Agent, Needham, MA
Thu Sep 6, 2012
Katherine, Thank you for giving me best answer.

If I can be of assistance during your process and or make recommendations during it, please let me know.
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