Good Deal? - Property in Austin, TX

[M T Naughton]

Hello,

I hope everyone is well!

I'm in the middle of closing on a fairly large property in a fairly central part of Austin, TX. Since I still have 8 days to make a decision, I thought it would make sense to share the deal with my larger real estate network to see if it really made financial sense.
Here are the details.

Purchase price: 1.238M

Loan: 10% down with a 3.65% interest rate. My downpayment and closing costs will be $138,878

Location: 1.5 miles from Downtown Austin in "A" Neighborhood - House is on the side of a freeway but there is a wall barrier

Sq Ft: 4400

Beds/Baths: 9 beds / 9.5 baths

Kitchen: 1 kitchen - needs to be remodeled

Living room: Non-existent - there is an attic space that could be renovated, I could convert a larger bedroom, or I could create nooks in each room or in the halls

Zoning: Zoned as a duplex but currently a single-family home (not up to code)

Year built: 1981

History: Inspector says the house was "overbuilt" - The structure is very solid with no signs of damage. The home was initially a duplex for a father and his adult daughter - The daughter then turned the home into a Bed and Breakfast - Currently being rented out room by room ($1,000/per room but not all rooms are rented at this time) 

Repairs: Needs a new central AC and heating system - Roof is 14 years old - Kitchen is outdated - common area

Plan: There are a few different options I am exploring. The top runner is to turn it into an airbnb and rent each room out individually. I will create a "tiny home" in the house (with private entry) and I will find a short-term rental property manager to run the operation with my oversight. Note: to run an Airbnb in Austin you have to live in the house. I think that by making improvements on the property I will be able to increase the valuation by ~400k (meeting with an appraiser to discuss tomorrow). The Zestimate for this house says it should be 1.7M but I am getting it for 1.238M.

Detailed cash flow analysis **Notes:1) I ran a few scenarios before landing on renting it out room by room 2) Year one rents are the result of waiting until current tenants' leases run out and I slowly replace moved out tenants with Airbnb guests

Annual numbers aside from cashflow:

Loan paydown	20,736
Appreciation	36,900
Forced appreciation	462,000
Depreciation	21,716

Question:

1. Is there anything in our strategy you'd recommend modifying? Maybe doing some other type of rental or something more creative?
2. Any blind spots we are missing?
3. Would you do this deal?
4. Any other advice that I'm not asking for but you think I need? :) 

Thank you so much for taking the time to review all of this. It means a lot!

Best,
Matt

[Ryan Kelly]

@M T Naughton just to be clear, do you plan to live in the property? If not, it would be illegal per city ordinance to operate a short-term rental in a residential zone. The city is no longer issuing the STR2 license, which was required for non-owner-occupied short-term rentals. The property also doesn't sound like it conforms to the land use, so you could need a variance from the city as well. You can find out more detail here:

https://www.austintexas.gov/de...