Would you hold or sell this duplex STR?

Question

Looking for advice on whether to keep holding or sell my Dallas duplex.

The property:

• Duplex with 2 1B1B units totaling around 1270 sq ft
• Lot size is around 5,000 sq ft
• 75208 zip code in a highly developing area 1 street away from Bishop Ave in Dallas (entire block has been or is currently being redeveloped into luxury apartments or townhomes)
• Zoned for mixed use development (planned development district 830 east garden)
• STR cash flows $500/month after property management cut and all expenses
• Paid $410k and put $96k down, currently have $30k in principal with $270k owed on the mortgage; mortgage rate is 4.125%
• Might need 2 new AC units within next 5 years, possibly a new roof in the next 10 or so

Duplex with 2 1B1B units totaling around 1270 sq ft

Lot size is around 5,000 sq ft

75208 zip code in a highly developing area 1 street away from Bishop Ave in Dallas (entire block has been or is currently being redeveloped into luxury apartments or townhomes)

Zoned for mixed use development (planned development district 830 east garden)

STR cash flows $500/month after property management cut and all expenses

Paid $410k and put $96k down, currently have $30k in principal with $270k owed on the mortgage; mortgage rate is 4.125%

Might need 2 new AC units within next 5 years, possibly a new roof in the next 10 or so

The situation & comps:

• Investor neighbor next door has listed their lot for sale for $550k and the lot is slightly smaller than mine. It could be far more appealing to a developer to acquire both their lot and mine together so I’m wondering if now is the right time to list mine, as well. Nearly all the other lots on the block have been sold and redeveloped already.

Investor neighbor next door has listed their lot for sale for $550k and the lot is slightly smaller than mine. It could be far more appealing to a developer to acquire both their lot and mine together so I’m wondering if now is the right time to list mine, as well. Nearly all the other lots on the block have been sold and redeveloped already.

• The closest comp is another duplex right across the street that is listed for $625k but has been recently renovated.
• If I were to list, I’m thinking low-mid $500s would make sense, keeping in mind that a developer would have demo costs so the duplex wouldn’t be an asset.

The closest comp is another duplex right across the street that is listed for $625k but has been recently renovated.

If I were to list, I’m thinking low-mid $500s would make sense, keeping in mind that a developer would have demo costs so the duplex wouldn’t be an asset.

Personally, there’s not a pressing need for the cash and we would park the funds in a low risk play for the time being. We aren’t interested in owning/acquiring more real estate. I don’t want to be shortsighted but the $500/month cash flow isn’t super motivating. Am I thinking about this wrong? If you were in my position would you sell or hold?

BJ Everson · Answer

Skye, one way to frame it is the return on the equity you'd free up. If it sold in the low-mid $500s with about $270K owed, you'd net very roughly $210K-$240K after selling costs. $500 a month is $6,000 a year, under 3% on that equity, before principal paydown and appreciation. Your 4.125% loan helps, but the real comparison is that number against what the cash would earn in your low-risk option after taxes. Two other things I'd check: ask your tax preparer about depreciation recapture and capital gains on a sale, and ask a land or commercial broker whether a developer would pay more for your lot and your neighbor's together. If you both list separately, you may be competing for the same buyer.

Lauren Kormylo · Answer

FYI, if you hold it, two new ACs are going to wipe out about 1.5 years of cash flow or more.

John Racine · Answer

Skye, I don't know Dallas specifically, but there's a lot of good happening on that block. In theory, every new development around you pushes your value up, so it's worth thinking about holding on.

Almost every investor I've talked to regrets the properties they sold. That's not a reason to hold forever, but I'd make sure the decision comes down to the numbers and not to $500 a month feeling unmotivating.

John Racine · Answer

The vast majority seem to. I had a couple of rough duplexes I owned that I sold and absolutely DO NOT regret selling them, nut all of my others, I do. I think the longer term play with appreciation, rent growth etc makes hindsight look 20/20 as they say

Jules Aton · Answer

@John Racine It surprises me that you know so many who regret selling. I have sold more than a few over the years and am certain every single one has increased in value since but I don’t regret selling and moving on. In some cases I put the funds into stock market which is a truly passive investment and others to bigger or better properties.

Jules Aton · Answer

I love the sounds of this neighborhood, have generally taken a bird in the hand and am happy to move on. I have also seen a couple of shady moves in gentrifing areas where suddenly the land is forced into sale to the city etc. Walking with a nice profit and truly passive money In your case might be especially appealing since you aren't planning to do more RE. Where is your financial plan AA currently sitting? Would it make sense to take funds and split between low fee TSM index fund and bond, T-bill type investment? Even though I'm only a few years from retirement, outside of a SORR bucket, I have a hard time convincing myself to devote too much space to the "low risk play".

Noah Laker · Answer

Hold unless a developer pays you for the pair. The lot next door alone is listed at $550k and yours is slightly bigger, so low-mid $500s underprices your lot plus a cash flowing duplex. Your 4.125% loan and $500 a month are hard to replace in a low risk play. Tradeoff is the AC and roof work coming in the next 5 to 10 years, so budget for that. Hope this helps, DM me if you want to talk through the developer angle.

Would you hold or sell this duplex STR?

Would you hold or sell this duplex STR?

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