max value for 78745?

Question

Hi! After years of browsing finally decided to post...so much valuable info on BP it's ridiculous!

I have a duplex (held for 11 years) that would sell today for $205K (as is) in highly desirable neighborhood in 78745. First nine years it was my bachelor pad and rented side paid most of my mortgage. The side I lived in had some work done while I was there and currently rents for $1,000.

The other side was rented to long term tenant for under market value. Finally vacated that unit and it looks rough. Deciding to sell for greatest return on investment which means I'll need to rehab that unit and exterior. Budgeting $30K. At that point it will generate $2,200 in monthly rental income.

A couple of rehabbed SFR on same street were listed at $275K and $285K one is now rented @ $1,575 monthly.

Wondering how much would someone expect to pay for $2,200 worth of rental income on an already rehabbed duplex in a hot area? I've seen property list for over $300,000 in that area so my numbers don't seem unreasonable but I still want to know what the pros think.

Could I sell the duplex for $275,000-$299,000 on just "the numbers"?

This is an older thread but summer 2013 in Austin has been crazy...nothing rehabbed lasts longer than a week, seriously! Last Tuesday a vacant residential lot down the road was auctioned for $116,000.

Any input is greatly appreciated!

Thanks,

JFR

J Rod · Answer

@Corey Young Ok, good to know. At some point I read about a 2% rule that just seems too high; it would be more like 1%. I started to wonder if they actually meant 2% of the loan amount after your down payment.

Corey Young · Answer

I've only purchased one buy and hold. It currently has a 15% return. That is now my minimum expectation as I look to procure other properties. As for cash flow, I don't think I'd be happy if it wasn't earning $350/month. If that property goes up in value faster than it rents, I suspect I'll sell and reinvest when my cap rate hits 10%.

J Rod · Answer

@Bryan Hancock I think I'll leave as is...adding living space to just one side will take a lot more than I have. Thanks though!

Bryan Hancock · Answer

If it's a corner lot you'll also have setbacks on two sides. I would suggest talking to an architect if you get serious about adding space.

J Rod · Answer

@Bryan Hancock Because it's a corner lot I would say only one side has room for growth given the L shaped yard. .

J Rod · Answer

Hey Corey, It's about 1,675 sq ft, so about 837 per side (each is a 2/1/1). I am concerned that I could possibly "over improve" a rental but it just doesn't seem possible in that neighborhood. For the last 11 years I've done the simple make-ready for the quick re-rent knowing I'd eventually have to put some real money into it to max out value at sale. I agree $30K is really high but I'm going for 100% ROI with minimal risk. How much cash flow do you usually look for when purchasing a rental? The unit I'm improving the most would be ideal for an owner-occupant who wants someone else paying $1,000 of their mortgage or a high end tenant willing to pay $1,200+ in rent for a new unit and in that case an investor would be bringing in $2,200 to cover the $1,300 mortgage (if they put down 20%) and bought for $265,000 ($158psf). If I didn't think I could at least double my $30K during the sale, I wouldn't do it. At this point I'm only risking the interest earned on that $30K because if I can't sell it for a 100% ROI I'd simply hold it for another year and collect $2,200 a month. In this whole transaction my biggest concern is getting the appraisal to come in at the right amount! Thanks, Jason

Bryan Hancock · Answer

Those would be rather small houses for a full family. Is there room in the back of the units to add on space to make them bigger and stay within the McMansion constraints regarding FAR, impervious coverage, tent, etc.?

J Rod · Answer

Hi Bryan The duplex is 1,675 sq ft. on 0.1927 acres (corner lot); each unit is about 837 sq ft. $170psf for rehabbed is spot-on in that neighborhood. I'll look into the condo regime, I never considered that as an option. Learn something new everyday! Thanks, Jason

Corey Young · Answer

J Rod, I don't know the total square footage. However, my assumption is that $30k to rehab rental property seems to be a bit high.I don't get the impression that your units are dilapidated. $30K is what I would spend if the place is piece of JUNK and I purchased it for well under market value. I live down the road from you. Rental properties in this area are nothing special aesthetically and commanding a lot of income. As you know, all you need to do is make sure the place is clean and mechanically sound. Laminate counter tops and brass fittings are fine. Renters don't expect more in that price point. A new coat of paint and new floors if necessary. But $30k? That seems high if we're only talking about dingy and dirty. I'll even throw in a brand new AC and water heater and you're still nowhere close to $30K. I think you can elevate the value, improve the cap rate and not risk $30K.

Bryan Hancock · Answer

New product in 78745 is selling for about $170psf the last time I looked. Your best exits would probably be to sell each side to owner-occupants given the housing shortage the morons at the city are creating. You could do a condo regime and sell them off separately. What size are the units? If you sell the product to an investor you're unlikely to get nearly as much. If you trade it at around a 7-cap you'd clear about $350k or so. If the units are a decent size you'd probably get close to twice that selling them to owner-occupants.