First Deal: Play It Safe or Go for Broke?
Long time lurker, first time poster. Thank you getting me to this point.
About Me:
28 male, married, no kids.
Income: $65k/ year - Expenses: 24k/ year - Cash to invest: $150k
I'm in negotiations for two potential first deals:
Option 1: Duplex in lower-middle class neighborhood.
Price: $150k
Income for both units: $2k/mo
Traditional Financing: $37,500 down
50% rule cashflows $250/mo
8% ROI
Option 2: Duplex, House, and Studio in upscale downtown (with development potential).
Price: $925,000
Income for 4 units AS IS: $5400
Owner Financing $625k at 6% with 300k down.
A little better than break even as is. Not cash-flowing with current units.
Here's where things get interesting:
The area is downtown Sarasota FL. It's located a few blocks north of main street, and things are expanding rapidly. Half a mile away is the Ritz Carlton, Hyatt etc. The waterfront property across the street just sold for 38 million with plans for 3 towers. Embassy suite just bought the land two blocks behind mine. One block west there's a 55+ senior citizen tower being built. 5 blocks north there is a 750 unit apartment building going in. Of course a lot more is going on, but you get the idea.
My lots are zoned to build 12 residential units (5 stories), with 2 free retail spaces on ground level. That's the plan for most of the lots on this particular street. 2 sets of double lots (that I know of) are in the beginning stages of similar plans.
So assuming I could come up with the extra million (pulling that number out of thin air right now) to develop the land, the numbers are extremely lucrative.
Numbers If Developed:
12 units at $1800 per unit - $21,600/mo + $4000/mo for 2 retail spaces.
Total potential gross income - $25k/ mo
Land Note at 6%: $4600/mo
Taxes and Insurance: $1000/mo (pulling this number out of thin air)
For the development, it would probably be a partnership with an investor, since there isn't a possibility of a loan if the land already has a lien on it.
But assume it was a construction loan at 7%. That would be $6600/mo.
Total potential net - $12,800 a month
I'm obviously WAY over my head, and I would have to come up with a $150k personal loan for the down payment, and then find an investor for the development. But I think I have the connections for both.
The question is...do I play it safe and just collect lower income duplexes one at a time. Or take advantage of this owner financing deal, find an investor to help me develop the land and potentially end up with nice monthly income and part ownership of a multi-million dollar building downtown?