Blog
DFW Infill Teardown vs Rehab Economics Guide
By Jason Taken · Principal, Jaken Finance Group
DFW teardown-rebuild economics — when land plus demo beats a $200K gut, LTC/LTARV math, Dallas vs Plano permits, hail carry, and worked Preston Hollow example.
Every infill lot in DFW forces the same fork: rehab the existing ranch or tear down and rebuild? On Preston Hollow, Lakewood, East Dallas, Lower Greenville, and inner Plano blocks, the 1960s–1988 slab ranch often trades below replacement cost while a new custom or duplex product commands $200–$350/sf finished — if the ISD comp fence and LTARV cap cooperate.
This guide covers LTC and LTARV math, demolition sequencing, construction loan structure, permit calendars by city, hail insurance, and exit underwriting — the companion to spec home construction loans Texas and luxury new construction DFW. For acquisition on existing stock, see fix and flip loans Texas and hard money lenders Texas. For permanent hold exits, see DSCR loans Texas.
When teardown beats rehab
Run this comparison before you option a lot:
| Input | Rehab existing ranch | Teardown → new custom SFR |
|---|---|---|
| Land / building basis | $320K (1978 ranch, Lakewood) | $285K land + $22K demo |
| Vertical cost | $165K gut (kitchen, baths, MEP, roof) | $720K new build (3,100 sf) |
| Total project cost | $485K | $1,027K |
| Stabilized / resale value | $595K–$650K | $1,150K–$1,220K |
| Timeline | 6–9 months | 14–17 months |
| Product | Fix and flip or hold | Construction — up to 100% LTC qualified up to $2.5M |
Teardown wins when per-square-foot new construction clears the rehab alternative and existing structure needs $180K+ in structural, plumbing, envelope, and layout work — approaching new-build cost without new-build efficiency. It also wins when the buyer pool compares your product to production new on the next arterial (Frisco tract versus Southlake custom).
Teardown loses when compatibility or FAR caps the envelope (more Austin than Dallas, but East Dallas overlays exist), when 75% LTARV binds so tight the sponsor equity gap exceeds flip margin, or when six-month flip carry beats eighteen-month construction carry on a $450K ARV file.
Submarket ceilings matter. A beautiful $850K spec in a $720K comp band fails refi and resale — see DFW luxury NC for ISD rules.
LTC and LTARV math — how lenders underwrite DFW infill
Construction lenders price on two leverage rails:
| Metric | Typical cap (qualified files) | What it measures |
|---|---|---|
| LTC (loan-to-cost) | Up to 100% on qualified files up to $2.5M | Loan ÷ total project cost |
| LTARV (loan-to-ARV) | Up to 75% | Loan ÷ as-completed appraised value |
Preston Hollow preview:
- Total project cost: $1,285,000 · As-completed ARV: $1,520,000
- Max at 85% LTC: $1,092,250 ✓ · Max at 75% LTARV: $1,140,000 ✓
- Binding constraint: LTARV if ARV slips to $1,420,000 → 75% = $1,065,000 — only 82.9% LTC. Equity gap: ~$220,000 plus reserve.
Stress ARV down 10% before land close. Hail during framing, wrong ISD comp, or production-builder discounting kills spread.
Interest carry (required in pro forma, often outside LTC):
| Loan balance | Rate | Months IO | Interest carry |
|---|---|---|---|
| $1,050,000 | 11.0% | 16 | ~$154,000 |
| $820,000 | 10.75% | 14 | ~$136,500 |
Budget 2–4 months IO beyond draw schedule. Exhausting reserves at month eleven triggers extension fees or forced sale of a half-built frame.
Cost per square foot — 2026 DFW reality
| Build type | All-in $/sf (vertical hard) |
|---|---|
| Standard ranch gut rehab | $85–$140/sf |
| New infill custom (Collin / Dallas) | $220–$320/sf |
| Luxury scrape (Southlake, HP) | $280–$400/sf |
| Duplex / fourplex infill (where zoned) | $200–$280/sf |
Material costs stabilized mid-2026, but custom labor and city inspection cycles extend calendars. Budget 8%–12% soft cost and 10%–15% contingency on hard vertical.
Construction loan structure
Qualified DFW infill files price at 8.99%–13.5% interest-only on the drawn balance, 12–18 month term, 5–7 milestone draws, close 10–14 business days with complete plans.
| Phase | Typical draw % |
|---|---|
| Land / demo / utilities | 20%–25% |
| Foundation | 15%–20% |
| Framing / dry-in | 20%–25% |
| MEP rough | 15%–18% |
| Drywall / exterior | 12%–15% |
| Finish / CO | Balance |
Never front-load >20% before foundation inspection. Draws fund 48–72 hours after third-party inspection.
Builder’s risk through CO. Hail event mid-build — verify coverage and deductible (1%–2% on high-value roof).
Permits — Dallas is not Plano
City of Dallas
Planning & Development / DallasNow for residential new construction. Sequence:
- Demolition permit and utility disconnects
- New construction plan review (practical 4–8 weeks with corrections)
- Trade permits and inspections through CO
City reported improved residential median wait times post-2025 department merger — still pad calendar for corrections and oak/utility conflicts on infill.
Plano / Frisco / McKinney (Collin)
Suburban review often 3–6 weeks on clean single-family sets. Trade: MUD/PID, impact fees, production competition. Pull CCAD tax cert — post-close reassessment on January 1.
Fort Worth
Fort Worth Development Services — separate from Dallas. Tarrant Appraisal District taxes. Near Southside and Westover infill growing — different comp pools than Dallas north.
| City | Plan review (practical) | Teardown extra steps |
|---|---|---|
| Dallas | 4–8 weeks | Demo permit, oak/utility holds |
| Plano | 3–5 weeks | City-specific impact schedule |
| Fort Worth | 3–6 weeks | TAD tax modeling |
Dual exit — retail versus DSCR
Retail sell-out — primary on $900K+ owner-occupant custom in Carroll, HP, Preston Hollow corridors. Plan 60–120 DOM. Luxury bridge if listed slow.
DSCR takeout — duplex/fourplex or standard BTR vertical where rent supports 1.0+ DSCR at 70%–75% LTV. A $985K fourplex at $7,200/mo gross needs tax modeled at full assessment — Texas 1.8%–2.4% effective rates hurt yield-on-cost. See construction to DSCR takeout.
Worked example — Lakewood teardown → custom spec
Operator buys 1972 ranch on 60’ lot, plans 3,050 sf custom targeting move-up O-O buyers.
| Line | Amount |
|---|---|
| Acquisition | $298,000 |
| Demolition | $20,500 |
| Vertical ($248/sf avg) | $756,400 |
| Soft + permits | $52,000 |
| Contingency (12%) | $98,000 |
| Total cost | $1,224,900 |
| As-completed ARV | $1,385,000 |
| 75% LTARV | $1,038,750 |
| 82% LTC | $1,004,418 |
| Advance | $1,004,418 (LTC binds) |
| Sponsor equity | ~$220,482 + reserve |
16-month build + 90-day marketing at 11% IO: budget $145K carry.
Exit. List $1,385,000. If production Frisco tract at $720K steals buyers, DOM slips — bridge playbook, not price panic.
Worked example — East Dallas duplex infill (hold exit)
Smaller lot, duplex allowed, 2 × 1,450 sf units, BTR-minded sponsor.
| Line | Amount |
|---|---|
| Land + demo | $215,000 |
| Vertical duplex | $485,000 |
| Soft + contingency | $78,000 |
| Total cost | $778,000 |
| As-completed value | $920,000 |
| 75% LTARV | $690,000 |
| Stabilized rent | $3,400/mo per side ($6,800 gross) |
DSCR refi at 72% LTV, 7.5% fixed, DSCR 1.18 month 14 — if tax at full ~$19K/yr modeled upfront.
Common mistakes
| Mistake | Fix |
|---|---|
| Gut when structure needs $200K+ | Run teardown column honestly |
| One “DFW” permit timeline | City-specific calendar |
| Ignore demo + disconnect carry | 4–8 weeks dead interest on land |
| Wrong ISD comps on ARV | Carroll ≠ Coppell ≠ Dallas ISD |
| 6-month IO reserve on 16-month build | Size reserve to ugly case |
| Skip hail deductible in pro forma | Roof-forward reserve line |
Oak, flood, and utility overlays — Dallas infill diligence
East Dallas and Lakewood lots may carry heritage tree requirements — removal permits and mitigation fees before demo. Budget $5K–$25K+ when protected oaks sit in building footprint.
Flood zones on creek-adjacent infill: elevation certificate and finished-floor height drive vertical cost. Harris County FEMA logic does not copy to Dallas — pull FIRM panel for parcel.
Alley and utility easements on 50’ lots constrain building pad — survey before compatibility or setback calc.
Stepping up from flip sponsor to construction sponsor
Many DFW operators ran 50+ ranch flips at 100% LTC and want first scrape. Underwriting changes:
| Flip habit | Construction reality |
|---|---|
| 6-month hold model | 16-month minimum |
| ARV from three solds | As-completed from custom solds |
| One GC bid | Architect + structural + milestone GC |
| Reserve $15K | Reserve $90K–$150K IO |
First scrape: bring liquidity for LTARV gap even if prior flips were 100% funded. Land-heavy Preston Hollow often binds at 75% LTARV with $200K+ sponsor equity.
Insurance line items flip pro formas omit
- Builder’s risk — typically 0.5%–1.2% of hard cost annually
- Hail deductible on completed spec — 1%–2% of dwelling limit
- Vacant dwelling after CO until close
- Flood if AE zone — separate from hail
A $1.2M spec with 2% hail deductible is $24,000 cash before insurer pays — reserve it.
Next steps
- Standard investor ground-up: spec home construction Texas
- $900K+ O-O spec: luxury NC DFW
- 4–12 door pod: community build DFW
- Volume flip on ranch: fix and flip Texas
- Apply: Newbuild · (833) 264-7776
Fort Worth Near Southside and Dallas Bishop Arts — infill character
Near Southside Fort Worth and Bishop Arts / Oak Cliff reward walkable infill but carry parking, alley access, and neighbor friction. Budget legal and outreach for variance when lot is non-conforming — variance pending is not a funded vertical start.
Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. Jaken Finance Group only finances non-owner occupied investment properties.