2 good deals - choose 1 or do both?

Question

Happy Thursday!

I’m in the great spot of having found a couple of good deals and naturally I want to do both, but would like some input from more seasoned investors. My husband and I just sold a rental property in WA state so we have about $85k to invest.

Deal #1 - off market property with studio ADU (kitchenette has a sink only, no fridge or oven). Using seller financing at $450k purchase price, $65k down, 4.9% interest with 5 year balloon. Plan to rent main house (2500sq ft) long term and MTR the ADU. CoC about 5% initially but could possibly MTR the main house in the future. Pretty good appreciation potential.

Deal #2 - MLS property using conventional loan with purchase price of $240k, 10% down, 7.5% interest, will need about $12-15k in updates/rehab. Also has a 2/1 ADU with full kitchen. Would rent main house (1600sq ft) long term and ADU as midterm. Great appreciation potential! CoC would be about 25%.

The first deal is also through a family member so that always clouds the water a bit. About to sign purchase agreement with them when we came across the 2nd deal yesterday. Should I walk away from the first property or try to raise private money to make both deals happen?

Thanks for any insight!

Henry Clark · Answer

You have the upside covered.  Now look at the downside.  3 scenarios. Each property just by itself.  Both properties together.

Run what ifs:

1.  Renter A quits paying for xx months

2.  Unit B has unexpected capex of $xx,xxx

3.  Family members needs money now after deal is done.  Impact of refinancing?

Compare the risk reward between the 3 scenarios.  Can you handle?

Matthew Gentile · Answer

Definitely comes down to risk assessment and bandwidth. If you can do one successfully I could imagine you could do two, but do you have the resources financial and time/manpower to operate two deals at once.

Worst case, figure out which one has less risk and more upside, take that one and offload the second to someone else for a fee and you still get a return on it even if its marginal in comparison.

Personally I would offload the family one to avoid that cloud unless you can for sure do them both.

Good luck!

Audrey Blotz · Answer

Unfortunately, we ended up looking into the ADU on Deal #2 a bit further and found out that the ADU, carport and part of the addition to the main house were not permitted, so decided to walk away. I appreciate all your guys' advice!

Theresa Harris · Answer

For deal 1 is the ADU able to be used for living space?  What would you do for the kitchen and how much would it cost?

Also are you able to get financing for both with less than 20% down?  20% down is the norm for most rentals.  First on is seller financing, so perhaps.  Purchase prices are quite different ($240K vs $450K)...is that due to location and size?

I bought two rentals within a month or two of each other.  One needed some work, other was turn key; but both were SFH.  Taking on two rentals with 4 units is a lot.

Jake Baker · Answer

@Audrey Blotz

Definitely dont bite off more than you can chew. Be sure to have proper reserves on the sideline incase rehabs go over budget or timelines get extended. If you have a solid plan in place, go for it!

2 good deals - choose 1 or do both?

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