Build ADU or buy investment property?

[Nick Lawrence]

Long time reader first time poster. I am debating between building an ADU in our backyard or buying an investment property out of state. We have an external garage that we could build a small ADU, 350-400sq ft, on top of. Cost would probably be around 125k from talking to my contractor. We live in a nice beach community in north San Diego, so rent I'm guessing would at least be 1500/mo. Downfall is privacy, we could probably build it with a separate entry but lots in our in neighborhood are all 5000sqft, so it's tight. Bonus would be have extra room for family members down the road if we decided not to rent it out.

My other option is buying a rental out of state, MN, where my other rental is. Cost about 300k for a decent house and rents around 2000+/ mo. I have a property manager that is great and already looking after my 1st investment property.

ADU would be funded 60k cash and home equity loan for remainder. Investment property 60k cash and mortgage.

I know it's a pretty vague question but just wondering what you all might think.