Vancouver BC has "tear downs" with a purchase price of $800,000. These are then replaced with $1.2 million dollar homes. These then sell for $2.4 million. The extra $400,000 is then profit. Ther person now owns a home worth MORE than the investment...after 2 years of build-time. The cost of the morgage is added to the cost of the tear down + new build. You would also need to rent another home to do this sort of "intense" renovation.

There are certain criteria you can look at for the tear-down+rebuild vs. total remodel. If your home is in an area where the home = $150,000 and a total gut and remodel = $100,000 that means you will have spent $250,000 on a home.A total gut and remodel can be "lived through" but it is extremely tough. Plan on several months living elsewhere during the dirtiest part of the job...or when the floors are being installed. If the neighborhood/city has an average house price of $175,000 you may never get the extra $75,000 out of your home for another 30 years. That's when you look at what $250,000 buys you in that city.

If that same house, when torn down and rebuilt ($30,000-$60,000 for tear down) plus $250,000 rebuild will then sell for $600,000 ... now you want to look at the tear down/rebuild. You always want to be in possession of a house that is worth MORE than your mortgage. If you own a $300,000 house and you owe $600,000 worth of mortgage you are in trouble.

First things first...you have to have the income/debt ratio that will 'allow' a bank to lend you hundreds of thousands of dollars more than what your morgage is right now.

The "easiest" option is sell your current home and look for something a bit more your style. If you can handle another $100,000 for renovations then you can probably handle moving up the food chain into a home that is "more you".

It all depends on market pressures, current value of your property relative to other properties and how much more debt you can handle/are allowed to carry. If you are maxed out on all of these concerns then you won't have much wiggle room.

Most lenders are happy to see a debt/income ratio of 32-35%. If you have a great paying job (neurosurgeon) with a great credit rating they will extend that to 45%...but that's about it. For normal people (less than $300,000 a year) the debt ratio sits at 35% as a rule.