Real Estate: Fighting McMansions

Brad Milton went on a business trip in October. When he returned to his home in Omaha, Neb., five days later, a house down the block had disappeared. Someone had bought it, torn it down, and was set to build a hulking home that will likely loom large over its neighbors.

It's a construction trend that Milton, an architect, finds particularly alarming. Even as the real estate market has cooled off, buyers and developers in desirable towns continue to buy smaller, older homes as "tear downs, quickly dismantling the old house and building a huge one in its place. It's a trend that's altering neighborhoods around the country. In some towns—most recently in Wellesley, Mass.—so called "mansionization" is causing loud debates over how big is too big and resulting in new regulations and "big house review" boards. When the house next door to Milton's went up for sale a few years ago, he feared it too would be leveled and rebuilt into a hulking monstrosity. So the Milton family decided to do something about it: they bought the home themselves.

It's not that Milton is against renovations. In fact, Milton and his family have, over 15 years, expanded their 1950s ranch-style home into a 5-bedroom, 3-bath, 2,600-square-foot home. But too many of the additions in his neighborhood are out of scale, making an older home look like a Mini Cooper parked next to a Cadillac Escalade. "There's one near us that's truly atrocious," Milton says.

He was determined to not have another huge home built on the lot next door. So when his elderly neighbor died, leaving behind a small, neglected home that was all but certain to become the target of a bulldozer, Milton told his neighbor's heirs that he wanted to buy the place himself. He assured them that unlike most buyers he wouldn't treat it as a tear-down; instead he intended to fix it up and rent it out.

A deal like this takes some financial guts. The Milton family probably couldn't have made it work if their own residence—which they purchased for around $100,000 in the early 1990s—hadn't appreciated so dramatically over the years. Today it's worth around $400,000, Milton figures. They paid about $200,000 for the house next door, financing the deal with an interest-only adjustable-rate mortgage. Milton spent an additional $20,000 fixing up the property. Today he rents it out for $1,680 per month, which just about covers his carrying costs. Despite the potential headaches of being a landlord, he says his tenants have been a pleasure and the hassles have been minimal.

So far the deal has paid off. Even as national home prices have cooled off, values in Milton's neighborhood—which contains one of Omaha's top high schools—continue to perform well. He estimates that the house next door could fetch $320,000 today—an enviable return on his investment.

He is not the only homeowner who has bought adjoining properties to create a buffer zone. In Medina, Wash., Bill Gates has purchased several lots around his $135 million home. In New York wealthy apartment owners routinely buy adjoining units and tear down walls to gain precious square footage. Of course, not everyone can find a spare hundred thousand or two to keep a McMansion from rising above theirs—and, admittedly, it's a lot easier to swing these deals in Omaha than in a place like Wellesley, where even a tear-down often costs more than half a million dollars.

Milton is hardly the only architect who's against the bigger-is-better mentality when it comes to houses. For nearly a decade architect Sarah Susanka has been trying to educate people that all the focus on square footage is misguided. "More rooms, bigger spaces and vaulted ceilings do not necessarily give us what we need in a home," Susanka wrote in her 1998 manifesto, "The Not So Big House." Instead Susanka argues that Americans are better off building smaller, more thoughtfully designed homes utilizing higher-quality interiors, alcoves and bookshelves, natural materials and trim.

But when that kind of moral suasion doesn't work, Milton maintains that for concerned homeowners with the financial wherewithal, buying the house next door can make sense. "Given the right opportunity, if it's the right house and the right neighborhood, this is a great way to go," he says. "It solved our concerns, and it has really been a win-win … It's going to wind up making us money."

With his children in high school, Milton says he may be ready to sell his own house in a few years. When he does, he has no illusions about what will happen next. "When we sell both lots, somebody can build a really big house," he says, predicting the buyer will level both homes. "I hate to say that, but inevitably that's what's going to happen." Until then, his family has the pleasure of having made a good investment—and of looking out their window and not having the sky blotted out by the house next door.