2 Properties - Which do I choose?!

[Calvin Kwan]

Hey Guys!

I have a bit of a dilemma.  There are 2 properties that I am interested in with different offer due dates.  Here are the key details using the BP rental calculator!

Property A:

Monthly Cashflow:  $516

CoC: 5.04%

NOI: $32,203

Offer Due: 2/1 (Tomorrow)  

Notes:   This is a turnkey property in a decent up and coming neighborhood.  I would be able to put tenants into the units on day one.  Seller renovated this property before putting it to market.  I would be putting my counter offer on this property but it's pretty close their first counter.

Property B:

Monthly Cashflow:  $1,234.66

CoC: 8.47%

NOI: $38,157.00

Offer Due:  2/12

Notes:  This is a total fixer.  There is NO inspection report available, but I heard some contractors say it would take about 30K/4 weeks or so to bring up to rental standards.  I doubled this estimate for my calculations.  Great location!!!

I REALLY like Property B and see tons more potential in it.  The problem is in the timing.  I can pass on Property A, but if i get outbid on Property B, or the inspection comes up with major issues, I would be left with nothing.  I could offer on A, but if B sells for less than my target price, I would be kicking myself for a while.  

How do you guys handle situations like this?  Play it safe w/ A, or risk it with B?  

By the way, I'm a newbie investor, so please forgive me if I'm thinking about this all wrong!

Thanks!

Calvin

[Account Closed]

@Account Closed See my edited post.

Yes in theory I should agree with you that the required rate of return is proportional to the level of risk. 

In reality humans are not always rational. Why did RE prices raise so much where cap rates where squeezed so low in '07 ? In 07 cap rates where low, so in theory it was less risky right ? Well that was the riskiest time to invest.

If your still not convinced research the efficient frontier of portfolios.
There are assets you can buy that are more risky but dont offer as good a return as other equally risky assets. That is the reality. Therefore cap rates dont always measure risk. 

They are a valuation tool. And values can be inflated and deflated based on what people are willing to pay. Cap rates measure what people are willing to pay for a property. And that can be influenced by so many other things than just risk. 

tldr; cap rates dont always measure risk. look it up