Not sure what to do, selling would be easiest but don't want to waste an opportunity, if there is one.
Rental house in 78744, close to downtown on .24 acre.
Tenants leaving soon. Living room floor is sagging, pier and bean foundation needs 38k to make the house up to code, there are many other issues also, it's old and weird.
Rent is 1500, I owe 120k on it.
I was thinking of getting a construction loan, scraping it and building a 2000sqft duplex, it's zoned for that and there are no tree issues.
Arv of new build would be around 430k
Construction @ $150sqft = $350k + 120k land = $470k
Maybe I answered my own question, hmmmmm...
if You do the $40k in repairs, what’s the land and house worth? If it’s worth more than $160k than you can do the repairs. Will it be liek new then or still and old outdated house ready to break down? If it’s worth less than $160k then I’d start over with the duplex because you’re already upside down. Will you get a lot more rent for a brand new duplex? Could you/would you want to live in half?
Austin is only poised for more growth and appreciation. We don't buy there currently because appreciation isn't our play, but the one property we do own will never be sold. Austin is among the most popular secondary cities to move to. It's sucking up population from LA, San Francisco, Chicago, name a major city. Rent is going up. Prices are going up. That billion dollar Apple campus is going up on the north side. Your $120k loan isn't going up. That's my two cents. Fixing it would be profitable in the long term, if you're in a position to hold. If not, you won't have any problem selling.
I'm not so familiar with the south side, but north of downtown a C+ duplex brings in $2k-3k rent. Not quite the 10% rule for the cost of your new construction. But then I don't think anyone has seen a ten cap in Austin for a while now.
Have you run the numbers on building a single-family home and an ADU? I suspect your return might be better than building a duplex.
Michael Tyler, You nailed it about Austin that's why I'm hesitant to sell it. I'm leaning toward putting some money into it and holding, the numbers on a new dupe don't make sense to me, if it was just north of downtown it would be another story.
Jon, how would the numbers differ between a dupe and a sfr with an adu?
You would need to look at comps, but in a neighborhood to your north, 78721, a new 2000sf duplex might sell for 350k per side, while an SFR and ADU could sell for 450k and 350k.
If I had .24 acres, zoned SF3, I'd look at 1800SF and 1100SF ADU. Check your comps.
Also, nothing wrong with building new and the holding. We are mostly holding our new builds now in East Austin.
@Jon Klaus If 78744 had comps like 21, I would not be questioning what move to make. I will fix the sag in the floor, get rid of some of the weird, and drive it for a few more years, hopefully during that time the north fever will spread south and it will make sense to scrape and rebuild 2 units on it. Are you holding in 21?
Thanx for your time!
You could fix up the home and add an ADU. I'm holding units in 78721, 78723, and 78702. Will be selling 4 new ones in 02 shortly. I wouldn't mind keeping them, but need to pay down debt and diversify into lower priced areas.
@Donna Pattani If you call around to your local banks, I think you will find that a construction loan is not going to be feasible given the numbers that you mentioned. None of my local banks will write a construction loan on a property that has an existing loan. Some may allow the existing loan to roll into a new construction loan, but most banks will only loan 75-80% of total costs (some my be as low as a LTC of 70% for new construction with no experience). Long gone are the days what banks will loan on estimated appraised value, allowing you to borrow all of the construction costs.
I agree with other that the best play may be a renovation/repair of the existing house and investigate adding a ADU if allowed by local code.
Also, if the lot without a house is not worth $120k, forget about bull dozing this property and think about just looking for an infill lot to build.
@Donna Pattani Check your comps. An arv of $430k would make that property the most expensive duplex in that zip code. The highest priced duplex sold for $401k and it was completely remodeled with granite counters, undermounted sinks, new high end flooring, etc. If its me, I would do some repairs and wait to remodel it. If you can remodel it and get close to $400k then why go through the hassle of city permits etc just to try to make a few more bucks. The city permits and the construction process will slow you down for months so in fact you may not even make a few more bucks. It needs to be a big spread, imo to make it worthwhile. The process is not cheap!