Should I Turn SFR into Duplex or Buy MFR in overpriced market?

[Sergio Avina]

Looking to purchase my first MFR, but can't decide whether to turn what seems like a good deal (SFR) into a duplex by building a new house in the back or purchase a MFR, in Los Angeles. What do you think ?

Here's the scoop. I've made offers on two different properties... two examples below. I'd need to live in one of the homes and rent the other/s.  What's the best method of comparing the two examples?

SFR-

Price: $500k. 4 bed, 3 bath (2k sq ft). Could use a little TLC, which will cost about $25k.

Lot size is nearly 15k sq ft. Zoning will only allow the build of one house in the back yard.  

Location: middle income neighborhood with rentals in high demand & a university 3 miles away. East of Downtown LA, near Orange County.

My plan is to purchase at 3.5% down (FHA) & within 2-4 months, take out a second, as well as use some private lender money to build. I don't know the average cost (per sq ft) for a new build in the area -- looking into this now. My realtor estimated $145k for a house with about 1,600 sq ft and a two car garage.

MFR-

Price: $675k.  2 separate buildings, one with 3+2, a second with 2+1, and a third studio. All in nearly move-in ready condition. They may need about $10k in minor upgrades. 

Location: middle income neighborhood near a university, 12 minutes to Downtown LA. 

As an inexperienced buyer/investor I don't know how to best compare/analyze the deals against each other. I've listened to about one third of the BP podcasts, which have been very helpful, but still don't know the way to go. What advise can you offer? Any advise is much appreciated. 

BP follower...

Thanks!