Build ADU condo to rent or sell in East Austin, TX

11 Replies

We have a property in Central East Austin — very accessible to Downtown, UT, and the new Dell Medical School. We've owned the property for 15 years and recently paid off our mortgage completely. 

The original 2br house was built in 1930 and we've preserved the original exterior. We are pursuing historic designation, which can take a huge chunk off of the property taxes. This does not preclude us from building an addition, so long as it is sufficiently discernible from the original structure. We're planning to take off a non-original back porch and replace with a 3rd bedroom/office and second bathroom. 

We've also asked the architect we've engaged for this addition to do a feasibility report and design that includes an ADU at the back of our lot. It's an 8,200 sqft corner lot with alley access, so it's a legitimate candidate for a second unit according to local permitting/zoning standards. We'd like to build a modest 2br home on the other half of the lot. We might then rent it, but also thinking of selling it as a condo in the near future in order to be debt free or use the cash for another investment.

I'd love feedback:
 - Does this sound like a sound idea?
 - Any advice on whether it would be preferable to sell as a condo immediately (or soon) after construction vs becoming landlords and putting the rent towards the construction loan?
 - I am having a hard time estimating what the cost for construction might be, but since we own the land and are not intending to do fancy finish outs, I'm hoping that the addition + ADU can come in under 200k. I arrived at that from lots of Googling to find $150/sqft a reasonable price and assuming the house would be 1,100 square feet. We only have 20k/10% to put towards a down payment — would that be insufficient for this type of loan?

Thanks in advance for any advice!

(Also, is there a way I can switch this to the Austin Real Estate Forum? Seems like it might be more relevant there!)

Why don’t you just refi the place and use the money for construction?

If the numbers work out this sounds like a great opportunity.

@Amenity Applewhite Depending on the location in E. Austin, you should be able to make money building and selling the ADU since you already have the land. If my math is right on the McMansion FAR max, you can build up to an 1100 sq ft ADU as long as your main house is less than 2180 sq ft, assuming 8200 sq ft lot. Look at mx3homes.com for some examples of B units and what they go for -- ballpark 350-375/sq ft. depending on location. You probably want to add a little to your estimated construction cost but you should still have a good return if you sell the ADU. Assuming you're fine with condo regime-ing and selling the ADU, that'll be a better financial move than leasing out, given the high sales price.

Are you planning to stay in the house? I haven't dug into historic preservation, but I'd assume the trade-off to historic preservation tax savings would be limitations on demolition, which could restrict your buyer pool when you sell. If you do a nice rehab you should be alright and the tax savings could help you sell. And of course if it's a cool house it can just be a good thing to do to get the historical preservation.

$200k might be tight for both projects -- it depends on what you do for an addition. Have your architect put some rough designs together and you can take that to a couple builders.

Good luck!

If it's proximity is really close to Down Town etc. I see this as Great place for AirBnB/HomeAway. 

@Amenity Applewhite

@Leon L. made most of the points I wanted to make. It really depends on your plans and goals. If my goal were to be debt free, then I'd personally lean toward condo converting and selling the ADU. However, I'd ultimately look at the numbers on each strategy to see what fits best with what I'm trying to do. You can always try renting it first to see how it works.

Thanks y'all! @Leon L., all that info is especially helpful. Your FAR max is the same one I got, though I've also seen variances awarded for FAR and setbacks - though in those case it was mostly to appease neighbors opposing the construction. 
So familiar with MX3 and seen what they've sold for. They're often atrociously ugly, too! We'll be getting some cost estimates from the architect, so I'll be able to update the construction cost, but yes - that would still be a good return — at least covering the cost of the addition on the main house and giving us a nice lump of profit.

Leasing would definitely be a pain. I think of the advantage there being that if we held it for a while (15 years?) the value would increase enough to make it worth our while, especially since the rental #s look like they'd cover the mortgage in the meantime. That said, leaning towards condo regime and selling, so it's good to hear you think that makes sense.

Historic preservation completely limits demolition. We've already done major renovations - new foundation, geothermal HVAC, completely new kitchen & interior, etc. etc. so I think our buyer pool would just shift towards people looking for the ever-rarer historic house that isn't a tear-down in our neighborhood. Our work, 10+ years of sweat equity, is very high quality, so it really wouldn't make sense to tear down unless zoning completely changed and the lot could have an apartment building on it. :) Also, we are surrounded by 5 historic, well-preserved houses, so it's really the only "cluster" left in our hood. It seems like there is a market for that, don't you think?

@Amenity Applewhite

you cannot legally subdivide a lot of your size, that’s why the recommendations for condo.

Any update on getting costs for the ADU construction?

David, - actually, I can subdivide. Our neighborhood has adopted the cottage lot infill tool (linked to above). There are just design requirements (front porch, parking) that have to be met. 

That said, I am going to pursue building as a condo. Looks like the cost comes in at ~300k.

@Amenity Applewhite The biggest advantage is that subdividing is a city zoning process - it will cost you around $30k and 12-18 months. A condo regime is about $2500 and 2 weeks using a lawyer. The city is not involved.

Austin question: When creating either a subdivided lot (from ADU and main house) OR a condo, does it matter if you have only one water meter or do you need to have two separate water meters to sell the front and back separately?

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