Live In Flip Deal! Or flop?

[Zachary Sexton]

My wife and I are under contract on a duplex in the rapidly developing* east side of Austin, TX.

We made a $471,000 offer and are approved for a 3.5% FHA loan (as long as the sellers are willing to replace the roof, add some base board heaters and fix some plumbing issues... fingers crossed).

Our taxes, insurance, annual and upfront MIP have us in there at about $3,330 a month with a $25,000 downpayment.

The current rent for the front and back units are $1,450 and $1,535 respectively. Rent-o-meter says the average rent is $1,765 for the area, so there may be some room for raising the rent (especially after the first round of updates we plan on making). AirBNB-ing our place when big events come into town could further subsidize our holding cost (#gettingpaidtocamp!).    

The plan is to move into the back unit. Renovate for a year. Move into the front unit. Renovate for a year. We'd like to do the renovations ourselves so we can: 

• learn how the guts of a house work to become better investors
• capture more of the equity with our sweat
• pay for the project as we go
• save money on material costs w/ CraigsList and Restore purchases
• become more flexible, capable humans

We also think it would be fun.

After 2 years, we will try to sell each unit individually as a condo. The units are already metered separately so this should only run us an extra $3,000 to $4,000 in legal/survey fees + a fence.  

We technically have the lot space to increase the size of the structure and turn these small 2/1 houses into 3/2s. Comps show that could give us a very high after repair value: 

$900,000 ARV - https://matrix.abor.com/Matrix/Public/Portal.aspx?...

We could also keep the units as 2/1s. Do a full interior exterior remodel. Landscape. And possibly add a nice screened in porch to make the back unit feel bigger.

$700,000 ARV - https://matrix.abor.com/Matrix/Public/Portal.aspx?...

I can't imaging the reno costs on the less ambitious 2/1 route going over $100,000 with us doing a majority of the work. That would leave us with a potential six figure profit as long as the market doesn't turn on us (and, personally, I'm fairly bullish on Austin even if the rest of the economy and/or housing market takes a dip). If the market does go down, we can hold the duplex as a primary residence or full (breakeven) rental while we wait for the market to bounce back.   

What do you think BP? Are we setting ourselves up for pain? Or could this be a good real estate learning experience for me and my wife? Honestly, as long as we don't loose our shirts I'll consider it a win. 

Thank you for your wisdom.

Sincerely,

Zack

P.S. Feel free to ask me about any more details that would help you evaluate our situation.  

* This is how hot the market has been: