First Deal: Play It Safe or Go for Broke?

[Mike Moyer]

Long time lurker, first time poster.  Thank you getting me to this point.

About Me:

28 male, married, no kids. 

Income: $65k/ year - Expenses: 24k/ year - Cash to invest: $150k

I'm in negotiations for two potential first deals:

Option 1: Duplex in lower-middle class neighborhood. 

Price: $150k

Income for both units: $2k/mo

Traditional Financing: $37,500 down 

50% rule cashflows $250/mo 

8% ROI

Option 2: Duplex, House, and Studio in upscale downtown (with development potential).

Price: $925,000

Income for 4 units AS IS: $5400

Owner Financing $625k at 6% with 300k down. 

 A little better than break even as is.  Not cash-flowing with current units. 

Here's where things get interesting:

The area is downtown Sarasota FL.  It's located a few blocks north of main street, and things are expanding rapidly.  Half a mile away is the Ritz Carlton, Hyatt etc.  The waterfront property across the street just sold for 38 million with plans for 3 towers. Embassy suite just bought the land two blocks behind mine.  One block west there's a 55+ senior citizen tower being built.  5 blocks north there is a 750 unit apartment building going in.  Of course a lot more is going on, but you get the idea.

My lots are zoned to build 12 residential units (5 stories), with 2 free retail spaces on ground level.  That's the plan for most of the lots on this particular street.  2 sets of double lots (that I know of) are in the beginning stages of similar plans.  

So assuming I could come up with the extra million (pulling that number out of thin air right now) to develop the land, the numbers are extremely lucrative.  

Numbers If Developed: 

12 units at $1800 per unit - $21,600/mo + $4000/mo for 2 retail spaces. 

Total potential gross income - $25k/ mo

Land Note at 6%: $4600/mo

Taxes and Insurance: $1000/mo (pulling this number out of thin air)

For the development, it would probably be a partnership with an investor, since there isn't a possibility of a loan if the land already has a lien on it. 

But assume it was a construction loan at 7%.  That would be $6600/mo. 

Total potential net - $12,800 a month 

I'm obviously WAY over my head, and I would have to come up with a $150k personal loan for the down payment, and then find an investor for the development.  But I think I have the connections for both.  

The question is...do I play it safe and just collect lower income duplexes one at a time.  Or take advantage of this owner financing deal, find an investor to help me develop the land and potentially end up with nice monthly income and part ownership of a multi-million dollar building downtown?