Turn long-term rental into new STR advice
Hi,
I’m looking for some advice on potential strategies with an existing long-term rental property that I have in Austin, TX. I purchased this property 5 years ago as my primary residence and have since turned it into a long-term rental, which is making minimal cash flow as it is a 1960s style bungalow.
I am thinking through potential strategies and was looking for advice or feasibility if I were to build a new property and turn it into a short-term rental. Nice STR properties in the radius with a pool rent for around $20-25K per month, which would make this a nice cash flowing asset.
My thoughts on how I would do this would be:
- Scrape existing property and build a large 3,000 square foot property with a pool and make it a highly desirable Airbnb destination property
- New build properties in the area with these specs sell for around $2 million, so I would use financing for the build and cash out to take on a larger loan using a DSCR product.
- I owe around $380K on the property currently and it is valued around $600K with most of the value in the land.
- I'm estimating that a new build would cost around $600K to build and I would use a hard money loan to finance the construction of the property and do a cash-out refi with a new loan balance of around $1.5 million and a DSCR of around 2.1 on a roughly $1.75-$2 million property.
- This would allow me to have a great cash flowing asset in a good neighborhood that I can hold onto for the long-term.
What am I missing? Are there steps that I am not considering?
Any help or advice is greatly appreciated!
Thanks,
Daniel