DIY for $3m, or Buy for $4m

If you can't even imagine a two million-dollar fixer, maybe you should stop reading now.

Dated, forlorn and a bit musty, 524 15th St. is nonetheless quite the rage in town. The entry fee is $2.2 million, but that's just the beginning for whomever takes the keys.

The home is being marketed simultaneously to builders and to "move-in buyers." A clever strategy that might, just might, draw top dollar.

The big reason: Location, location. This isn't the best or highest part of American Martyrs hill, but it is where it is – 6300 sq. ft. of dirt on the beach side with some sparkling views of downtown, PV and Catalina from the rear.

The other reason this might get expensive quickly: If you can get a second party bidding, madness could break out. Say what you will about builders, but they're smart. They don't want to pay $2.2m for this lot. They won't get into a bidding war with other builders. But if you suck "move-in" buyers into this mix, the lot value does go up. Who comes out on top then?

Recent lot sales up the street suggest that $2.2m is high by 10%, probably more. Here they are:

• 608 15th, sold 2/06, $1.975m
• 613 15th, sold 5/06, $1.950m
• 604 15th, sold 8/06, $2.020m

All those lots are midway through construction now, and there's talk that some are pre-sold at $4m-plus.

So the bad news for 524 15th is that the lot location is worse, by comparison, than those lots sold last year at $2m or so.

And there's this: Builders are starting to wonder about the prices they can get at completion. Today's $4.2-$4.5m house might not fetch all that in two years. So do you pay more for the lot while worrying you'll get less when you're built out?

Would-be "move-in buyers" have a different calculus. To walk through is to realize there is no way that paint, floorings, windows and countertops will modernize this house. Unh-unh.

The master is an insult, by today's standards. It's the only bedroom (out of 4) with room for more than a bed and dresser. Not much more room, though, and the "master bath" is small and cannot be expanded without huge changes in the floorplan.

The highest-quality space – the second floor living room with the views – really fails to impress. To capture the potential here, you're going to take out the fireplace, raise the roof, build a deck – generally treat the existing layout like a bad first draft.

At 2,200 sq. ft., the house is positively tiny for its price range. If you're remodeling, you have to fix various flaws and probably add square footage. At the end, you're in for close to $3 million, assuming that the guts of the house (45 y.o.) are intact. You might wind up with 3,000 sq. ft. of nice home in a plus location, but for all the hassle, why not buy something newer?!?

That's why, here, MBC is betting on the builders. In this market, we need someone to start over on this lot.

Even if the current owners have found their home lovely, the family committing $3m to buy and remodel has better options. The builder hoping for $4m can probably pull that off if he moves quickly.