Accessorty Dwelling Unit or SFR Investment Property
Hi,
First time potential investor here. Wanted to get some feedback on the following scenarios. I live in the SF Bay Area (Castro Valley) and deciding which is a better option. Have kids and don't plan on moving anytime soon. Let's assume we have access to $100K cash and $100K HELOC (prime rate). Here are my options:
1) Build a detached accessory dwelling unit (ADU) in my backyard. Will cost ~$200K for a 640 sq ft unit (small 2bd/1ba or standard 1bd/1ba). I was surprised how expensive it would cost but based on research, that's how much it would cost in my area. For now, I think I'd be able to get at least $1,500/mth if I rented it out. Should be able get some decent cash flow to go towards mortgage on main house. My elderly parents could also live there when the time comes. Cons would be loss of privacy and won't be able rent out main house and ADU separately should I ever move out. My understanding is that owner must occupy one of the units.
2) Buy a single family house (3bd/2ba) investment property somewhere in Tracy or even Rockin, CA (Sacramento Area) for $400-$450K with 25% down. Mortgage would probably be $1,700-$1800 and I'd probably be able to rent it out for $2K? My understanding is SFR rarely have cash flow given the higher prices. I'd probably end up paying out of pocket on a monthly basis if I factor in property tax and maintenance and/or property management fees (should I go that route). So this would be a buy/hold strategy. I've read multi-family units are the way to go for positive cash flow but I'm a bit weary of that because given my budget, it'd probably be in a neighborhood that isn't so good). I'm also not too keen on investing Out of State (Austin, TX?) since I'm a newbie at this and would like to stay within a couple hours drive.
With respects to ROI, the ADU seems like the right choice but how much value would it add to my property. I know it's difficult to assess. Also, it's on the same parcel of land so it's not like I'd be able to sell it in the future if I ever needed the cash. If I purchased an investment property, I'd be able to get rid of it if the need arises.
If I build the ADU first, I won't have any cash left and qualify for a loan to buy an investment property in the future. If I buy an investment property first, I was thinking maybe I'd be able to pull some cash out from it in the next year to build my ADU (but no guarantee since construction costs could've gone up by then given the demand for ADUs).
Thoughts? Suggestions?
Thanks!