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Property owners facing the decision to rebuild after a disaster typically have two primary options: sell the land or rebuild. For those choosing to rebuild, this guide explores various financing strategies to help homeowners select the best approach for their unique circumstances. Using Altadena and Los Angeles County as an example, we aim to empower property owners to maximize their home’s value through the rebuilding process.

Rebuilding Options

For property owners willing to go beyond a simple, one-for-one replacement of their original home, there are opportunities to build a larger primary residence or include an ADU (Accessory Dwelling Unit). Below, we outline a financing scenario for rebuilding a larger home or a “like for like” replacement home with an ADU.

  • “Like for like” replacement: A home within 110% of the original structure’s square footage and height. This option avoids lengthy planning approvals and is expedited through county agencies. ADU approvals are further streamlined under state laws.

Example Scenario

Original Home Details:

  • Size: 1,200 sq ft
  • Value: $1.2 million
  • Remaining Mortgage: $600,000
  • Insurance Payout: $600,000 (for replacement costs)

Rebuild Options:

  1. 2,000 sq ft Custom Home: Requires a standard county approval process
  2. 1,320 sq ft Home (“like for like”) + 800 sq ft ADU: Benefits from slightly expedited approvals under local and state laws.

Construction Cost: $1 million

Financing Breakdown

  • Completed Property Value: $2 million (assumed for both options)
  • Maximum Loan: 75% Loan-to-Value (LTV), or $1.5 million
  • Insurance Payout: Use the $600,000 to pay off the existing $600,000 mortgage.
  • Loan Needed: $1 million construction loan (new mortgage at current interest rates).

Financial Impact

Before the fire, the property (with a 50-year-old home) was valued at $1.2 million. After rebuilding, the property could be worth $2 million, whether as a single new home or a primary residence with an ADU. In this scenario:

  • Property Value Increase: $800,000
  • Mortgage Increase: $400,000

This approach allows homeowners to significantly enhance their property’s value while managing financing responsibly.

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