Re-develop long-term rental into STR advice

[Daniel Tisdale]

Hi,

I’m looking for some advice on potential strategies with an existing long-term rental property that I have in Austin, TX. I purchased this property 5 years ago as my primary residence and have since turned it into a long-term rental, which is making minimal cash flow as it is a 1960s style bungalow.

I am thinking through potential strategies and was looking for advice or feasibility if I were to build a new property and turn it into a short-term rental. Nice STR properties in the radius with a pool rent for around $20-25K per month, which would make this a nice cash flowing asset.

My thoughts on how I would do this would be:

- Scrape existing property and build a large 3,000 square foot property with a pool and make it a highly desirable Airbnb destination property

- New build properties in the area with these specs sell for around $2 million, so I would use financing for the build and cash out to take on a larger loan using a DSCR product.

- I owe around $380K on the property currently and it is valued around $600K with most of the value in the land.

- I'm estimating that a new build would cost around $600K to build and I would use a hard money loan to finance the construction of the property and do a cash-out refi with a new loan balance of around $1.5 million and a DSCR of around 2.1 on a roughly $1.75-$2 million property.

- This would allow me to have a great cash flowing asset in a good neighborhood that I can hold onto for the long-term.

What am I missing? Are there steps that I am not considering?

Any help or advice is greatly appreciated!

Thanks,

Daniel

[Sarah Kensinger]

One question I thought of right away.... What does the future look like in Austin for STR? Could they be restricted or outright banned, and you have an expense property that can only be rented as a LTR. Also, would the type of home your thinking of building fit the neighborhood? I saw there are other million-dollar homes in the area, but what about the same street? You wouldn't want to build an expensive home on a middle-class street.

Lastly a 1.5-2 million property has to make more the $25k to make a profit, those type of properties usually need to push the 6-figure range on STR income. That might be something to think about and to run some hard numbers.