I have 3 lots, should I: sale? build? trailers?

Question

I just closed last week on a duplex in Victoria, TX that came with 3 lots attached. These lots are identical to the one the duplex sits on and is located off of a highway. The oil field rush in Victoria is taking over the rental market and prices are crazy all over town and surrounding towns.

My long term plan is to obtain as many rental properties as possible. Technically I could fit 4 trailers per lot but not sure if thats the best route and what type of tenants that would attract, long term holdup, etc.

Another thought was to build another duplex and keep repeating until all the lots are full. I would imagine this would cost the most and not sure if the return would be that much more.

Any advice? I'm young and just starting out, want to make some good decisions.

Joffrey Long · Answer

Matt,

Others gave very good items to consider, but I'd like to add one more point:

You mentioned you're young, and starting out.  Since your goal is to put together as many properties as possible, and hold them for rental income,  (A good plan, has worked nicely for me) you will run into something that to some extent, caught me by surprise - that is, you're going to have some of these properties, 30, 40 and if you're real lucky, 70 years more.

When I started buying, I planned to keep some of the properties, but I didn't really consider that if I was 25 and buying, one day I'd be 56 and then, how old would that property be that day?  (No normal 25 year old ever gives any serious thought to the bizarre possibility they could one day turn 56.)

Bottom line:   Trailers?  Manufactured Homes?   I'd stick with property that will, with good maintenance, outlast you.   I don't see it with those, even with manufactured stuff.  Plus - if you ever do find it to your advantage to sell those, manufactured homes open you up to so many stories and challenges when your buyer tries to get financing - while good old "stick-built" is much easier to lease out, sell, and finance, etc.

Joffrey

Jeff Kovac · Answer

Matt Studer Congratulations on venturing into energy related real estate activity. Your plans should take into account your proximity to the core drilling areas and the projected growth of the field. Most (but not all) current drilling activities is focused mainly on NAT GAS Liquids and Oil. Knowing what resources are being targeted in your area will help you understand more clearly how the energy activity in that area may progress. How far are you from the core drilling activity? What stage is the field experiencing - Exploratory, Development or Production? Are you in the path of the field's projected growth? Have they leased mineral acres in your area? Are drilling permits actively being issued, drilled and secured. Any time you can talk to employees of oil service companies you have the opportunity to gain information about the field's direction and growth. How large is Victoria? What is the current housing inventory? What are the vacancy rates? You may have an opportunity to capitalize from this Energy related activity but keep in mind that they can create a compressed and accelerated economy. Understanding the existing housing situation, the stage of drilling and development as well as the trends and direction of the field will greatly enhance your chances of success.

Regards,

Jeff

Ryan M. · Answer

Unless I missed it, what is the zoning?

Townships/Cities aren't big on people putting trailers in and renting them out.

J Scott · Answer

What would your return on investment be for each scenario?

What would your risk be?

What would your time commitment be?

If you can answer those questions, we might be able to give you some better advice.

Of course, once you're able to answer those questions, you probably won't need our advice anymore...  :)

Matt Studer · Answer

@Jeffrey Long  That makes a lot of sense. Your right I haven't quite thought of that far in the future. I guess my thoughts on a trailer would be short term but that seems like a bad decision. I'm going to talk to builders in the area for a more accurate pricing.

Can any of you investors offer up tips on financing the construction without using up my cash? I've always heard the term of using OPM (Other People's Money) but how does that realistically happen? Will a bank give me a loan based off of the equity of my home or the value of those lots and duplex?

Anthony Aguillard · Answer

Matt, I'm involved in the real estate investor in West Texas.  One of the hot ideas around here is to rent lot spaces in trailer parks.  This way you have limited overhead and landlord responsibilities.  There is a tremendous shortage of affordable housing around here.  Oil is King in Texas.  Good luck.

Karen Margrave · Answer

Matt Studer http://www.oakcreekhomes.com/commercial/modular-duplexes

Karen Margrave · Answer

Matt Studer If you're looking to buy and hold, and gain future appreciation, the duplex will be a better plan. I'm not sure what you are referring to on "trailers" but if they're movable, and not attached to a permanent foundation, forget it. However; you can probably find some good manufactured housing that would be affordable. You can go check them out and talk to the dealer about costs involved with setting up, etc. They go on a foundation and are considered the same as a stick built house.

Is the area on septic or sewer? Well or public water?

Matt Studer · Answer

Ha yeah that's pretty much what I'm looking for. It seems I could purchase some used trailers for around $15k each. I would think rent in the area would go for $800 a month each. A duplex I imagine would cost around $100k to build in the area and I could get $900 per side.

Anyone been in a similar situation? Usually it makes sense to buy rather than build but the market in Victoria right now seems quite the opposite.

I have 3 lots, should I: sale? build? trailers?

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