BUILDING NEW HOUSE TO SELL RARELY PAYS BIG PROFIT

DEAR BOB: Seven years ago, we bought a small beach cottage for $82,000. The land is now valued at $270,000, and the house is worth $75,000. My husband and I have a retirement plan that includes living in this cottage for two years before selling so we can walk away with up to $500,000 tax-free profit. But over the last two years, huge three-story "cottages" are being built all around us and selling for well above $1 million. My husband thinks we should tear down our existing cottage, build a larger one, live in it for two years, and then sell. Should we do this and would we have to live in it longer than two years? --Carol H.

DEAR CAROL: Why risk all the inconvenience of construction to possibly sell for the current value of your property, plus the cost of construction? That makes no sense.

Instead, after living in the cottage for two years, just sell for the value of the property as it is. Let some contractor buy it and build a big "cottage" at his risk and inconvenience. Rarely will you earn a big profit in a situation like yours by tearing down the house and building a bigger one before selling.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Copyright 2006 Inman News