Next Steps - ADU or SFH

[Orin Paul]

All, just a quick introduction, my name is Orin. Born and raised in the PNW where I currently work in the engineering field. A couple of years ago I bought my first SFH with the intention of a slow renovation and to eventually turn the home into my first rental property. Well, it's getting to the time where the renovations are almost complete and I want to take the next steps in starting a portfolio. Fair warning, I am completely new to the real estate investing process, but am excited to dive in! Here's my dilemma.

Option 1: The home I am in now has a detached garage that is in poor shape. The home was built in 1944 and the garage has rot through most of the walls, which unfortunately the previous home owner decided to re-side over... that was a joy to find. I'm of the opinion that it is a complete tear down. What I had in mind is to tear down to the foundation and rebuild, but convert it into a single bedroom ADU. Pricing it out I would likely be in the $50,000 range and I am more than capable of completing the work myself. The City is a breeze to work with so there are no concerns on the permitting process. The downside is I would be working evenings and nights to complete the work so it wouldn't be an immediate return.

Option 2: Complete the renovations on my existing house, leave the detached garage as is, get the home up for rent and look at buying a second property which ideally would be a 2-3 units. Proceeding this route I would leave the detached garage as is and use it for personal storage (i.e. deny any access to the renters). Unfortunately I don't have the capital to put 20% on a new property so that would also need to be a consideration.  Down the road I could look at rebuilding the garage and continued maintenance on the property. 

Option 3: Sell my current home. I have approximately $100,000 in equity. The house is older and does still have some high ticket money items that will need to be addressed in the near future (roof, garage, etc.), but the home is in a great location with pretty good long term potential. The money I make selling could then be used to look at either a 2-3 unit property or two separate SFHs. 

Really interested to hear how others would proceed. Like I said, I am completely new to this process so if any of this is completely off base I am all ears. Thanks!