I think you could advertise it for sale without a sign out front; that would keep it from scaring away tenants. The sign out front is mostly for show, anyway; very few serious buyers find a place for sale by driving around randomly. It does happen, but mostly people find it in the MLS / Zillow.
I think advertising it for sale now at your target price is a good idea. Get "almost as much" profit as splitting and building, without the hassle of splitting and building. Price in your opportunity cost and cost of your pain. (Ie, reduce your target profit by that much.) Seems like a win/win if it works, with zero out of pocket cost if it doesn't. Meanwhile you can be working on your plans. I don't think a year is necessary; 30 days will get you a gauge of interest. 90 would seem like more than enough; if you don't have any interest after 90 days are additional listing days really going to help?
I use Zillow to get my tenants, they’d see the for sale post. Not gonna do that.
How are rents in the area? It might make perfect sense to spiff the places up and hang on a while longer, if you can get decent rent boosts. I'd be inclined to hang on until mortgage rates settle down. If you sell, are you going to do a 1031 exchange? There's not much inventory out there.
Rents are good, I’m cash flowing just fine. The impetus for doing this is to try to cash out the (maybe) shitload of equity I’ve got in the property. It needs windows and the foundation might be sinking, so it’s going to need some loving. It’s also really really small, which limits the amount of rent I can charge. It’s no big deal to put in 10-15k and just keep on keeping on, but with the double tenant turn coming up I’m wondering if I need to make a change.
As for a 1031, I’m not opposed to it but I’m worried that it’ll be too tricky to pull off with the limited inventory in the area. Maybe I could 1031 into a new build? I don’t know if I’d make money doing that. Let’s say I sell the place for 700k, what am I going to buy for >700k that will make more money than the stock market? Typical $700k properties aren’t rentals and there aren’t many quads in the area where this place is or where I live.
Sure, I lived in a house like that, a skinny 4 stories (if you count the basement) 150 year old house. New builds of the same size and shape can be found in an adjacent neighborhood.
All of my neighbors lived in houses like this where running up and down stairways was a daily part of life. That is, until they became old. Then they adjusted their property or found other solutions to stay in our neighborhood of multi-story houses.
But that doesn’t address your main question. I would not plan on building anything if you do not have experience with it, for many reasons. Like Malcat said, if building is such a good deal why isnt everyone doing it?
It is dastardly hard to make money on one-off infill properties.
Thanks for your input on the house design.
On the bolded part though, no offense, but that’s loser thinking. How do you learn to do something new without trying it? Imagine a life without taking risks! Ugh.
Anyways.
The point isn't that you shouldn't take risks, the point is that without a certain amount of exposure to a process, it's very hard to do a reasonable risk analysis.
I'm huge on taking risks, but I do enough research to understand what the worst case scenario is, at least, and go from there.
There are a few types of risk analysis:
The upside is unlimited and the downside is limitedThis is your classic stock investing paradigm, you can only lose what you set out to risk, and what you have to gain is limitless. You don't need to do much risk analysis here if you are okay with a total loss.
With a non-stock situation, what you have to know is what the downside is and how acceptable the worst case outcome is. How much probability analysis you need to do comes down to how painful the worst case is.
Limited upside and limited downsideIn this scenario you again want to start with the worst case scenario and how acceptable it is. The worse the worst case scenario, the more you either need a higher limit to the best case, or a higher probability of the best case.
So a good example here is buying a primary residence. The downside of how much the value could drop has a limit, and the upside of how much it could go up in value also has a limit. But you don't need a massive market analysis to reasonably expect that the value will go up.
But if the limited downside exceeds the limited upside, you want to have a more sophisticated market analysis. Like investors who buy rentals in markets where they will lose money on the rentals, but are speculating that equity will increase beyond rental losses. These tend to be fairly sophisticated large scale pre-construction condo investors who have portfolios diversified across multiple markets.
unlimited upside and unlimited downsideThis would probably be best exemplified by Oxycontin. The Sacklers took a massive risk by committing fraud for a near-infinite amount of gain and risking a near infinite amount of damages.
There aren't a lot of opportunities for individuals to engage in this kind of risk.
And lastly, your scenario
A limited upside with a near infinite downsideThe reason this project has a near infinite downside is because of the risk of litigation if the project goes totally sideways and multiple entities lose substantial money.
There's only so much money that can be made above the value of selling the duplex as it is, and there are many scenarios where the downside exceeds that limited upside.
So in this case, probability analysis is *highly* critical, because you want to know as accurately as possible what the profit cutoff is for this project being worthwhile, exactly how well it needs to go to reach that cutoff, and what the probability is of failing to meet it.
You absolutely want to know what the worst case downside is and what the probability is of hitting that as well.
A fun stat is that research has shown that 1 in 4 property professional in the UK has contemplated suicide, with property developers having the worst mental health impacts from the inherent stresses of the industry.
"Taking a closer look at the property sector, EG’s survey reveals roughly 80% of developers have experienced a mental illness and 32% have considered suicide."
And these are the experienced professionals who know best how to avoid the horrible outcomes.
Again, that's not to dissuade you, go ahead and do it if you read all of this and are like "yeah, I can handle that!" I've done plenty of shit like that myself. I've taken on challenges that everyone told me were stupid and dangerous and I've kicked ass at them, but that's because I did a realistic risk analysis and understood where others failed and why I was less likely to.
If there's something about you or your connections or your property that make your situation exceptional and you are solid on that knowledge that your risk is manageable, then GO NUTS!
Property development is an area where I personally have zero advantage, in fact I'm disadvantaged because I'm disabled and can't do a lot of labour myself. So I personally wouldn't touch this risk profile with a thousand foot pole.
But I've taken bold as fuck, terrifying risks in my time and I'm a BIG fan.
So you do you, but make sure your confidence is based in sound risk analysis.
Also, if I were you, I would be asking myself if there is a more creative opportunity with a higher upside that I could throw THAT MUCH time/money/energy at.
I mean, if you have hundreds of thousands in liquid assets to deploy, months to years of time to tie it up, and an enormous capacity for stress, you could roll that investment into a hugely successful business venture for a hell of a lot more upside than a few hundred thousand taxable dollars.