Demolish a rental property & build new SFH on lot to sell

[Marzella Zielke]

I currently own a single family home in Dallas, TX.  It is located in a popular area near downtown Dallas.  We have owned it for 11 years, and it is currently being rented by the same tenant for the past 6 years.  When my husband and I moved out of the property, there were a handful of homes being scraped and HUGE homes being built on the land. Six years later, there are tons of huge homes in our small neighborhood and they sell quickly.  The homes being built are around 3,400 SF and are selling for about $206-$210 SF.  We used to get letters from investors and builders interested in the property all the time.  The home is old, built in 1940 with original plumbing and wiring.  The lot is 8,189 SF and the home is 1,008 SF.   The property does not generate any cash flow, but we have a good amount of equity in the house.

MY QUESTION:   Should we sell our home and use the cash to purchase other investment property?  Or should we demolish the home and construct a new home and sell it in hopes of a bigger return?  Or do nothing and keep renting it.  We are just afraid, that our small home will be surrounded by the larger sized homes in the coming years and we have lost our window of opportunity.  I was wondering if anyone who has done this in the past give me insight and advice on what to look for, ask, maybe number calculations that I should look at.  We are meeting with a couple of builders in the area in the coming weeks, to finalize more accurate numbers to make our final decision.  Also, more of an accurate timeline to see how long the process will take.  This is only my second post, so I am pretty sure I have left out needed information. 

[Marzella Zielke]

Hello everyone - thank you so much for the responses.  Dmitri, while living in the property we refinanced the house owner-occupied cash out.   A couple of years ago, while our tenant was living there we went to several banks to try to refinance the property, but we were told according to Texas law we could not do that as investors.   To answer your question on raising the rent, we have had the same tenant for six years, she is great and did not want to lose her.  We have raised the rent on her twice already.  Six years ago when we first put the property up for rent, there were 3 other homes in the area we were competing with, so ended up lowering our rental price to be competitive.  At the end of the day though, the taxes are killing us.  We fight property taxes every year on this property.  What started out as a positive cash flow property, has turned into no cash flow years later.  Calling around the neighborhood at other rentals in the area, we are a little below average on rent, so there is room to raise the rent.  The currents tenant lease is up March 2016, so we are trying to be proactive and figure out what are options are.  I know that if we sell the house, it will most likely be sold to an investor or builder.  If the property is going to be torn down and built on and sold, why not us?  I have not heard the term "pop-top", so I am going to look it up and start reading up  on it. 

Nicolas - would love to bounce ideas around, will be in contact soon.

Cal C - thank you so much for your advice.  I am currently reading his book on Flipping Houses (LOVE IT), and will download the book you mentioned. 

Again, thank you again for everyone's time and response.  I really love this website!