All Forum Posts by: Mark Gomez

Refi the house so they can continue to live in it, they will get the best loans on their primary residence. Use the funds to buy 1 -2 LTR rentals cash or use a loan and get 3 - 5 LTR's. The cashflow should cove ALL of the expenses for the primary (mortgage, taxes, insurance, utilities, etc) AND put money in their pocket. It is a very safe play.

Hi Mark, 

You're in a fortunate situation with your parents owning a mortgage-free home in a desirable area that has both appreciation potential and rental income opportunities. Here's some input to help guide the decision between selling or renting the property, considering the specifics of the property and the potential additions like the ADU (Accessory Dwelling Unit):

1. Selling the Property

If your parents decide to sell, they could:

• Sell As-Is: At a current appraisal of $350k, they could walk away with a sizable profit (after transaction costs like realtor fees, taxes, etc.). This would provide liquid cash to reinvest or use for other financial goals.
• Renovate and Sell: Given that the house could be worth $500k or more with updates, they could do a renovation first, potentially adding $150k+ in value. Since your dad is a contractor with access to affordable labor, the renovation costs could be lower than average. This could significantly increase the sale price and net profit after selling.

Pros of Selling:

• Immediate large cash flow that could be reinvested elsewhere (stocks, other real estate).
• No dealing with tenants or long-term property management.
• Benefiting from a high sale price in a desirable area.

Cons of Selling:

• No further long-term appreciation or rental income potential from the property.
• They may miss out on future gains if the neighborhood continues to increase in value.
• Capital gains taxes if the property is sold, although there may be exemptions if it’s their primary residence.

2. Renting the Property

If your parents rent out the home, they have multiple income-generating opportunities:

• Renting As-Is: A 4-bed/2.5-bath home in a desirable area could command a high rental rate, likely around $2,500–$3,500/month, depending on local market conditions. Since it's mortgage-free, the rental income would be mostly profit (after expenses such as property taxes, insurance, maintenance, etc.).
• Adding an ADU: With your dad's construction experience, building a 2-bed/2-bath ADU could significantly increase the rental income. An ADU could rent for an additional $1,200–$2,000/month, depending on the local market, potentially doubling the property's cash flow.
• Future Appreciation: Holding onto the property allows for potential appreciation over time, especially since it’s in a neighborhood with homes ranging from $500k to $1.5 million.

Pros of Renting:

• Steady Cash Flow: Renting the property, especially with an ADU, could generate substantial monthly income, especially since there's no mortgage.
• Appreciation: The property could continue to appreciate in value, especially after adding an ADU and further updates.
• Tax Benefits: Rental property owners can deduct expenses like property taxes, insurance, maintenance, and depreciation, which could offset income.
• Long-Term Wealth Building: Holding onto the property can contribute to building long-term wealth through both appreciation and rental income.

Cons of Renting:

• Property Management: They’ll need to manage tenants, handle maintenance, and deal with potential vacancy periods. However, this could be offset by hiring a property management company.
• Upfront Costs: If they add an ADU or renovate the property, there would be upfront costs to consider, even though your dad's connections could lower the construction costs.
• Market Fluctuations: The rental market can fluctuate, and there could be times when finding good tenants is more challenging.

3. Best of Both Worlds: Rent Now, Sell Later

One approach would be to rent the property for a few years, taking advantage of the strong rental market, then sell it down the road when they're ready to cash out or if they see the market peak. They could even add the ADU for extra cash flow in the meantime, potentially increasing the future sale price of the property.

Considerations for Adding an ADU:

• Rental Income Potential: In many areas, ADUs are highly desirable, especially in neighborhoods with high property values. An additional unit could easily add significant rental income while increasing the overall property value.
• Cost of Construction: Since your dad has construction experience and labor connections, the cost of building an ADU would likely be lower than market rates, making it an attractive investment.
• Zoning and Permits: Make sure to check the zoning laws and permit requirements for building an ADU in the area.

4. Next Steps:

• Market Research: Look at local rental comps to get a clear picture of what a 4-bed/2.5-bath would rent for, as well as how much an ADU could bring in. If rental demand is high, this could push you toward renting.
• Speak to a Realtor or Appraiser: Get a more detailed estimate of what the property could sell for with and without renovations, as well as its potential value after adding an ADU.
• Financial Projections: Compare the projected monthly cash flow from renting (especially with an ADU) to the net profit from selling after costs. This can give you a clearer picture of which route is more profitable long-term.

Final Thoughts: Given the location and your dad's construction expertise, holding onto the property and adding an ADU could create a strong cash-flowing asset and increase the property's value. However, if managing tenants isn't something your parents want to deal with, selling after renovations could also provide a large profit.

Feel free to reach out if you'd like help with running numbers or considering financing options if you go the ADU route → I'd be happy to help!

Best,

Drago

Really depends on what they are looking for as well as long term plans. It sounds like this is their personal residence. If so, they can sell within 2 years and not pay capital gains taxes on the sell of the home.

They could take that money and buy multiple rental homes in other areas if they wanted, or use the money to downsize in to a different home while still having money left over.

Have you thought about AirBnB, they can visit/stay with you while they rent it and earn income. 

Hi Man, welcome here

Welcome Mark, we are both in Texas.
What strategies do you know and have you found any deal yet?

Hey Dian. I am a wholesaler looking to also break into house hacking, brrrr strategy, and eventually fix and flips.

I am in west TX area

Where in Tx are you currently and what strategies do you employ?

Hi Man, welcome here