How Much Does It Cost to Gut a House?

If you’re following a fix-and-flip investment strategy, you’ve probably had fantasies of buying a property

If you’re following a fix-and-flip investment strategy, you’ve probably had fantasies of buying a property and tearing it down to the studs, especially if the property was in a great location. Following that train of thought, you probably also wondered, “How much does it cost to gut a house?” Here’s your answer.

While some estimates suggest that it costs between $100,000 and $200,000 to completely renovate a house from the ground up, the truth is that every renovation project is different. With that in mind, we’ve outlined some average costs below as well as the different factors that go into determining your bottom line.

What does it mean to gut a house?

In real estate, people often talk about doing a gut renovation when they simply mean that they’re planning to remodel the home. Truthfully, there’s a big difference between gutting a property and remodeling. By definition, “gutting” a home means bringing the entire interior down to the studs. However, sometimes, it can mean doing work to the exterior of the home as well.

In contrast, remodeling a home simply means redoing certain aspects. Usually, when people remodel a property, they leave the vast majority of the layout in place. In this case, they may redo many of the aesthetic and functional aspects of the property, but they often leave the core structural elements as is.

For this reason, gutting a property is often more costly and labor-intensive than simply doing a remodel. As an investor, it’s important to be able to make that distinction because your out-of-pocket costs for gutting a home versus doing an intensive remodel are going to be very different from one another, and it’s crucial that you have a clear idea of what to expect.

How much does it cost to gut a house?

Now that you know more about what doing a gut renovation project entails, the next step is to take a closer look at the potential costs. With that in mind, we’ve laid out some estimates below. Keep in mind that there are many factors that will affect your bottom line for your house renovation costs. However, these figures should give you some idea of what to expect.

Plumbing

According to a recent construction cost survey from the National Association of Home Builders (NAHB), the cost of installing new plumbing in a home adds up to be $14,745. This number generally accounts for 5{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} of new home construction costs overall. However, when you’re gutting a home, you can save money by resolving to keep most of the plumbing where it’s currently located.

Electrical

Luckily, the NAHB survey also includes figures for electrical work. According to the survey, putting in electrical work accounts for 4.7{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} of the cost of building a new home. This amount adds up to $13,798 and, notably, does not include fixtures. Again, you can save money by leaving the existing electrical work in place wherever possible.

Kitchen

Once you get into the nitty-gritty of undertaking your renovation project room by room, it’s a little harder to get such specific figures. For example, the 2019 Remodeling Impact Report, which is a joint venture between the National Association of the Remodeling Industry (NARI) and the National Association of Realtors (NAR), found that the average cost of a kitchen renovation is $68,000.

That said, there’s a lot of room to interpret the phrase “kitchen renovation” in different ways. For instance, in this case, an upscale remodeling project that includes custom kitchen cabinets and top-of-the-line appliances will likely run more than the suggested figure.

However, on the other hand, if you were to pick up ready-made cabinets from your local home improvement store and choose a variety of contractor-grade finishes, your kitchen remodel would likely cost less than what is being estimated here.

Bathrooms

As far as bathrooms are concerned, the 2019 Remodeling Impact Report suggests that a ground-up bathroom remodel costs an average of $35,000.

Keep in mind, this figure is per bathroom, so you’ll have to multiply it to account for the number of bathrooms you have in the property. That said, according to the report, if you want to add an entirely new bathroom to the home while you’re remodeling, you can expect your cost to be closer to $60,000.

Living rooms and bedrooms

Fortunately, living rooms and bedrooms are two projects that will go easy on your remodeling budget. Typically, unless you’re planning on reconfiguring the layout of the property, these rooms only need new flooring and interior paint. HomeAdvisor (NASDAQ: ANGI) estimates that the average living room renovation project will cost between $1,500 and $5,500. Meanwhile, a bedroom remodel costs even less, averaging between $1,500 and $3,500.

With that said, if you have designs of adding an entirely new master bedroom suite to the property as an addition, you’ll be in a whole new cost bracket altogether. The 2019 Remodeling Impact Report rates this project as one of the most likely to appeal to potential buyers. However, it may be best to proceed with caution. After all, the remodeling experts report that this project can cost a total of $150,000, on average.

Things tend to get even more expensive if you add a fireplace into the mix. At that point, the survey from the National Association of Home Builders estimates that you can expect to spend an additional $1,867 on materials and labor.

Basement

Finally, if you have the ability, converting an unfinished basement into a livable space was also one of the top projects listed on the NARI and NAR report. According to them, the remodeling cost for this project ended up being $46,900 on average.

At a minimum, this project consists of waterproofing the space, insulating the walls and doing drywall, adding new flooring, and painting. However, if you want to do more, like converting part of the space into a bedroom, there may be some additional safety and livability requirements that you have to meet, which can add to the overall cost.

Factors that go into determining the overall renovation cost

Truthfully, while the figures above may help you when it’s time to come up with a general estimate for your remodel cost, every renovation is different. At the end of the day, the total cost of your renovation is going to depend on a variety of factors.

To that end, we’ve laid out some of the most important factors below for your consideration. Take a moment to look them over so you can anticipate how they’ll affect your budget.

Permits

If you’re going to be doing any type of major renovation, you’ll likely need permits for the work. Permits are typically required when there are any kind of structural changes going on or electrical and plumbing work.

In order to keep things moving along smoothly, your best bet is to go talk to your state or municipal authority who’s in charge of issuing permits before you start your home renovation. That way, you can have everything set and ready to go instead of having to backtrack after the fact.

Materials

Ultimately, the materials you choose are also going to play a role in how much the total cost of your home remodel ends up being. If, for example, you choose to have a marble countertop in your kitchen, which by some estimates can cost $40 to $100 per square foot, it’s going to bump up your bottom line more than if you had settled for a mid-tier granite.

With that in mind, if you’re on a tight budget, your best bet is to comparison shop when it’s time to pick out your materials. While you don’t want to consistently pick the lowest-grade option, you’ll likely benefit from staying away from top-tier materials, especially when it comes to expensive items like tile, countertops, and cabinetry.

Labor cost

The next thing to think about is your labor cost. While every remodeling contractor is going to charge for labor costs, there isn’t really one set model for pricing. With that in mind, it’s important to get different quotes from a variety of contractors before deciding who to use for your project. Conventional wisdom states that you should get at least three different estimates before moving forward on a home improvement or remodeling project.

Additions

Obviously, if you’re making any additions to the property, that’s going to add to your bottom line considerably. In remodeling parlance, an addition occurs when you add on a new structure to the existing square footage of the home. Typically, a homeowner might decide to add an extra bedroom or bathroom in order to add more functionality. That said, it’s possible to add nearly any type of square footage to the home and call it an addition, including an extra living area or even a new garage.

In this case, the additional cost comes from the fact that you’re more or less building the new square footage from scratch. Here, you need to start by pouring the foundation and then build the framing, fill in the insulation and drywall, and put on a roof before moving on to adding the other functional finishes.

Changing the layout

Overall, changing up the layout of the home will usually add to your budget as well. Really, anytime you are moving walls or making other structural changes to the property, you’re going to encounter an added cost. That said, you can cut down on this cost by doing your best to keep the floor plan the same.

Property location and age

Finally, the property location and age will also play a role in how much you can expect to pay for your remodeling project. For instance, a renovation that is taking place in a higher-cost area such as New York City will likely cost more than if you were in a more moderate market like Minneapolis, Minnesota.

In addition, renovating an old house will generally cost more than if the house were newer. In this case, the additional cost has a lot to do with finding and fixing existing problems that may have occurred over the years and having to deal with newer building codes.

The home renovations with the best return on investment (ROI) in 2020

As an investor, your focus when gutting a house is going to be much different than that of a homeowner who is planning to live in the renovated property. Here, resale value should be your main point of interest. To that end, below are the top ten remodeling projects with the best return on investment in 2020, according to Remodeling Magazine’s yearly Cost vs. Value Report:

  1. Manufactured stone veneer: 95.6{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  2. Garage door replacement: 94.5{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  3. Minor kitchen remodel (midrange): 77.6{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  4. Fiber cement siding replacement: 77.6{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  5. Vinyl siding replacement: 74.7{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  6. Vinyl window replacement: 72.3{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  7. Wood deck addition: 72.1{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  8. Wood window replacement: 68.9{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  9. Steel entry door replacement: 68.8{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale
  10. Composite deck addition: 66.8{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} cost recouped at resale

Financing options for gutting a house

Finally, since gutting a property is undoubtedly going to be a big cost, it’s important to discuss some of the financing options that are available to you. With that in mind, we’ve gathered some of the most common avenues investors use to finance a home renovation below. Read them over to get a better sense of which option might be the best fit for you and your remodeling project.

Fannie Mae HomeStyle loan

When it comes to finding a renovation loan for an investment property, the first option that comes to mind is often the Fannie Mae HomeStyle loan. It’s meant to be marketed to investors as an alternative to the FHA 203(k) loan. With this one, you have the option of rolling your projected construction costs into the loan along with the purchase price for the property.

Since this loan is backed by Fannie Mae, it conforms to many of the guidelines set forth by the government-sponsored enterprise. For example, this loan comes with either 15-year or 30-year loan terms, offers up to 95{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} loan to value, and conforms to the same market interest rates and fees as any other conventional loan. Notably, you are able to use this loan even if you never intend to live in the property.

FHA 203(k) loan

In at least one respect, the FHA 203(k) loan is very similar to the Fannie Mae Homestyle loan. Namely, you’re able to build your construction costs into the loan along with the cost to purchase the property.

However, there is one big caveat to this loan that needs to be considered by investors: In order to qualify for an FHA loan, the property in question needs to be your primary residence. With that said, this loan is only really going to be a viable choice for investors who intend to buy a multifamily property and live in one of the units.

Home equity loan or HELOC

If you already own your own property, taking out a home equity loan or home equity line of credit (HELOC) might be another option for you. As you probably know, a home equity loan works similarly to your mortgage, where you’re given the money in one lump sum and are expected to make regular installment payments on the principal and interest.

Meanwhile, a home equity line of credit (HELOC) works more similarly to a credit card. Here, you’re given an amount of revolving credit that you can borrow against and pay down at will. Typically, a HELOC comes with a distinct borrowing period, during which time you are able to borrow against the line of credit as often as you wish and you may only have to make payments on the interest from what you’ve borrowed. However, after the borrowing period ends, that’s when the repayment period begins. At that point, you have to start paying down both your principal and interest amounts.

That said, with this method, it’s important to mention and that there will be a limit to how much you can borrow. Typically lenders only let you borrow up to 80{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} loan-to-value of your home. To that end, the amount you can borrow will also depend on how much equity you have built up in the property.

Hard money loan

Lastly, you could consider taking out a hard money loan. Hard money loans are almost always provided by private lenders, rather than a bank or financial institution. As is the case with most private lending, approval for these loans is mainly based on the value of the property itself rather than your creditworthiness as a borrower.

However, keep in mind that hard money loans are generally short-term loans, which means that they can last anywhere from six to 36 months. Typically, the interest rates on these loans are often much higher than you might find with an institutional lender.

The bottom line

At the end of the day, the cost to gut a house is going to depend on a variety of factors. With that in mind, use this post as your guide to the various factors that can influence your bottom line as an investor. Armed with this knowledge, you should have a better idea of what to expect in terms of the cost of this renovation project as well as a better idea of how to find out what your exact cost will be.