Newer Homes smaller lots v/s Older homes with bigger lots

[Arunesh Chandra]

I'm an Austin area newbie, looking to do a buy & hold kinda investment with positive cash flow. Trying to figure out if older communities with bigger lot sizes are better investment that newer homes with smaller lot sizes, from an appreciation perspective. 

[Alex G.]

Any investor who doesn’t understand that Austin is going through a major construction boom will completely miss out on one of the most lucrative opportunities we have here.  There is a huge demand for infill lots for new construction within the city that will likely continue for years. 

Right now the demand is primarily in the more central areas.  However, due to rapidly escalating costs of buildable lots, the demand has been spreading outwards as small builders search for cheaper lots to build on.

In that regard, it’s not a matter of whether the house is old or new. It’s a matter of whether you’ve got a lot you can build more on than presently is built there. Or will be able to to build eventually, assuming CodeNext ever becomes a reality.

If you’ve got a lot like this, there is a chance you can carve out 1-2 extra lots in the back through subdividing. Or you may already have it through favorable current zoning or a future zoning proposed by CodeNext.

For example, current zoning of this 0.40ac lot allows only one dwelling per lot, that of course already sits there. If you subdivide this lot and get extra 2 lots out of it, you now got 2 new vacant infill lots for 2 more SFRs.

If CodeNext passes in its current version, you’ll have an opportunity to get up to 7 (yes, seven!) units on this lot, using a “preservation” provision of the new version to keep the old house on the front rather than tearing it down. What do you think this will do to the value of your property?? That’s a forced value creation that will far exceed any appreciation you can hope for or any cash flow you could potentially extract from just a a single family home.

Plenty of opportunities here: (1) sell the lots to raise cash and pay off your loans on your existing house to get free and clear property for a long term hold, (2) Sell the front house keep the lots for long term appreciation (they will appreciate at the same rate as houses nearby), (3) Trade a lot to a builder to get him to build a small home on the back lot for you at a very low cost, (4) Sell some of these lots with owner financing for cash flow... And so on.

You have to be patient with these opportunities as subdividing your lot takes time and capital, monetizing your lot(s) takes time while you’re paying taxes, maintaining it, etc. But the $$ payoff is certainly worth it.

Happy bargain hunting!