Rent ? or tear down/build? in Austin TX

[Mazyar A.]

Hello

Please give me advice on my very first investment property.

Property location: Austin, TX

Neighborhood of the property: Has the fastest average growth in appreciation in metro Austin (2019: 12%, 2017: 24%)

Purchase price: $215K

Type: Attached Duplex (700 SF Front + 1000 SF back)

Lot: 7020 SF

Condition: Fixer-upper

Estimated total rent: at least $2K/m

Down: 27%

Loan 73%: short term (0% APR up to a year) from a very nice wealthy friend. He is in real estate business himself but lives in Seattle. He does not ask for any return on his loan. My goal is to refi it within the first 12 months.

4 bedrooms now (planning to split a larger one to two, so will be 5 bedrooms)

2.5 bathrooms

No garage or carport

Foundation repair: $5200 quoted

Remodeling: Two kitchens, 5 bedrooms, 1.5 bathrooms, changing some molded sheet rocks, floors, adding new mini-splits to the larger unit ($3K)

Total estimated remodeling costs: $25-35K

The remodeling is for the basic but necessary things, and is not intended to make the property elegant, because I am thinking about remodeling and renting it out for about 5 years, then tearing it down and building a 2 detached units (can build out up to a total of 2800 SF with the current city regulations). Since I am going to remodel and rent it out first and tear it down later on and probably sell it (not sure if the rents will be good enough for the invested money in the new buildings), I need to be wise now on how much I pour money for remodeling. When I bring contractors for estimates these days, all of them ask why don’t you tear it down now and build new?

My answers are: 1) lack of sufficient fund to build now, 2) this is my first investment in R.E. so I don’t want to move too fast, 3) due to COVID-19, sales market may not be as good as rental for awhile, 4) I want the property, or at least its lot appreciate more over the next 5 years.

Here is the estimated rent (not cash flow) with a vacancy of 10%.

yr1	$ 27,594.00
yr2	$ 28,421.82
yr3	$ 29,274.47
yr4	$ 30,152.71
yr5	$ 31,057.29

My questions:

What do you think about the overall plan.?

If I want to sell the property at some point, when is the best time to sell, to minimize the capital gain taxes? Ignore the other factors such as economy or appreciation.

Thank you so much