Sell, Lease or Vacation Rental Property in Northern Texas?

[Kimberly Young]

Hello BP community! Hoping I can pick your brilliant minds on a first-time investment property. I'm green and have been learning a ton from you guys. I'd love your help evaluating some numbers and a few scenarios. 

My partner's grandmother sadly passed away and we are in the midst of figuring out what we should do with the property - invest as a vacation rental, lease or sell. She took out a reverse mortgage in the amount of $273,000 which needs to be paid off within six months.

In short, it's a beautiful 17 acre property with a 3 bed 3.5 ba log cabin built in 2012 with a barn suitable for horses/cattle. It's about 2500 square feet, has a wrap around porch that overlooks a pond where I personally just caught a 5 lb large mouth bass this past week. The property is located in Holland, Texas which is a small town 10 minutes from the historic town of Saledo, TX, 45/60 minutes from Austin, 2 1/2 hours from Houston and 2 1/2 hours from Dallas. 

The property was last appraised for $400,000 (land + homestead) and we have the opportunity to purchase for what is owed on the loan. We can put 17%-18% down with 2% closing costs. Upfront costs and minor repairs will be taken care of prior to us purchasing. 

POTENTIAL SCENARIOS

Scenario A

- Vacation rental targeting Austin, Dallas and Houston. We would need to hit around 50% occupancy rate. Realize this option is extremely volatile especially since we would still need to maintain and upkeep the property. 

Scenario B

- We lease the property. This would have to be hyper targeted to higher income renters who have interest in the ranch lifestyle. We need to hit anywhere from $2900-$3000 a month in rent to get anywhere near 8% coc annually. This will be challenging since the going rate for 3 bed 3 ba is $1500 in the area. But because this is such a unique property, it could be a special case. 

Scenario C

- Her parents sell, we do not assume the loan and they receive the revenue from sale. We've met with numerous realtors who have told us the property could list from $415k-$550k. 

I would love your point of view and expertise here. The COC return is small for the first 5 years but we could realize a lot of equity in a short window.

Please be help keep me honest! This is a big decision and want to make sure I am asking the right questions and being as diligent as I can.  Looking forward to hearing your thoughts. 

Best,

Kim