Buying a Burned-Down Home: Is It Worth the Investment?

Devastating California wildfires have burned thousands of homes in recent years, leaving residents in disarray. The numbers are staggering: The two most recent and significant fires, the Eaton and Palisade fires, ravaged 9,413 and 6,833 structures, respectively, according to Cal Fire.

Amid this devastation, homeowners face difficult choices, one being whether to sell their burned-down home—or in some cases, the lot it was once sitting on.

Those who have elected to sell their properties have received surprising responses, even to some real estate agents.

Burned homes are selling faster than expected in California

Brock Harris, a real estate agent at Brock & Lori, listed an Altadena home destroyed in the Eaton fire “as land only” with his firm.

“We received over 100 calls on the property,” Harris tells Realtor.com®. “About half of them were experienced builders and/or investors, and the rest were people trying to see if there was a deal here or money to be made.”

The 9,109-square-foot lot on 95 W. Calaveras St. was sold for more than $100,00 over its asking price.

“It is in escrow for $550,000, all cash, no contingencies, and will close shortly,” adds Harris.

Harris attributes this to the large amount of construction capital in Southern California, which is chasing a minuscule number of flat, buildable lots.

“And there’s a lot of enthusiasm to rebuild Altadena,” he says.

Another example of a scorched home selling fast is a listing in the Palisades Highlands area.

“While the land has been impacted by the recent Palisades fire, it presents a blank canvas for visionary buyers ready to reimagine its potential,” the listing reads. “Don’t miss the chance to bring new life to this remarkable location. Serious inquiries only, please.”

The 9,932-square-foot lot was listed for $999,000 on Jan. 16 and sold for “well over $1 million,” according to the real estate agent.

Buying a property with fire damage and the upfront costs

According to Harris, these types of listings will grow. He says he is getting more calls every day as some owners realize that they are not willing or able to take on the responsibility of managing a construction project for the next three to five years.

“We are hearing from senior citizens, people with very small children, and owners whose insurance doesn’t come close to covering a rebuild,” he says. As much as they would like to, they just could not spend the time and money to rebuild their home.

“We are also hearing from a number of investors who would rather sell their lot and conduct a 1033 tax-deferred exchange than take on a building project with so much uncertainty. My estimate is half the homeowners will move on, sell, and let someone else rebuild their lot,” he adds.

Harris says building a house is a massive undertaking. It is capital- and people-intensive and can take three to five years.

What’s more, homebuilding is one of California’s most heavily regulated activities.

“Add in the existing labor shortage, and rebuilding costs end up around $500 to $600 per square foot, which means a small house in Altadena starts at $1 million after you buy the lot,” he says.

What kind of damage will a buyer expect to encounter?

Experts say you should not buy a fire-damaged house without first visually assessing it, as there are various levels of destruction.

Daniel Cabrera, founder and CEO of Fire Damage House Buyer, says that buyers can expect the following types of damages:

Superficial damage

These can include issues of smoke and soot, requiring deep cleaning and minor renovations.

Moderate damage

This type of damage can require partial rebuilds due to heat warping, electrical damage, or compromised framing, Cabrera says.

Major damage

This happens when there is “complete loss where nothing but land or foundation remains,” he says.

Water damage

Finally, Cabrera notes that water damage from firefighting normally adds to the repair complexity.

How much influence do zoning officials have?

Regarding zoning officials, Cabrera says that zoning administrators control land use but not building safety.

“When an engineer signs off on structural integrity, it helps meet building code requirements, but final permitting and rebuilding approval remains subject to the city,” he explains.

If the property is “red-tagged” (unsafe), the city can require additional remediation before permits are issued.

“Properties in historical districts or those subject to strict zoning laws may also have additional reconstruction restrictions,” he adds.

Should you get an insurance adjuster estimate?

The short answer is yes, experts say.

The extent of fire damage, whether from a localized kitchen blaze or an entire wildfire, affects repair costs significantly, explains Samuel Kile, real estate investor with Loyal Home Buyers.

He adds that an adjuster can estimate rebuilding expenses and help determine if the investment makes financial sense.

“Additionally, a city or county inspector should evaluate the property for environmental hazards, foundation integrity, and zoning compliance,” he says. In many cases, these inspections can be arranged before closing, giving the buyer a clearer understanding of what they’re stepping into.

Rebuilding a burned-down house

Rebuilding your home depends on the extent of the fire damage and how much of the square footage of the house is burned down.

For instance, if the foundation is good, the costs and timelines are far lower, Cabrera says. A structural engineer is required if the load-bearing walls, framing, or foundation are damaged.

He adds that reconstruction can take two to 18 months, depending on permits, material availability, and labor shortages.

“Financing and insurance are a major consideration—if the property was insured, the previous owner may have already received a settlement, which impacts sale price,” he adds.

How to find land or distressed properties?

There are several ways to find damaged properties, but these require targeted searches.

Multiple-listing services often label these as “as is” or “tear-down opportunities,” says Kile. In addition, auctions, tax sales, and direct outreach to property owners who have experienced recent damage can also uncover investment opportunities.

Finally, he adds that networking with local real estate agents, contractors, and city planners can provide insights into upcoming properties that may not yet be listed.

“Buying a burned-down home isn’t for the faint of heart, but with the right due diligence, it can present a strong investment opportunity,” says Kile. “Those who are willing to navigate zoning laws, construction challenges, and potential hazards may find themselves with a property that appreciates significantly in value after redevelopment.”