Need help choosing between two deals.

[Waylen Herdman]

These two deals are located in Clarksville, TN and I'm having trouble deciding which deal I should opt for (If my offer is accepted of course).

FIRST DEAL:  Duplex (2/1 each side)

Asking price - $77,500 in a D or C neighborhood (Offered 74k and they pay 1/2 closing costs).

Will probably need 5k - 7k in rehab.

ARV Probably $80k - $85k.

I was approved for a 3% conventional loan. At first I was planning on house-hacking with an FHA loan but now I'm thinking I'll just rent it out as I have better job opportunities where I currently live (Franklin, TN).

One side has been renovated while the other has not and I have yet to see it. The tenant is being evicted and supposed to be out this month (I have three contingencies: Seeing the other unit, tenant is vacated and inspection).

I believe once the other side is renovated I can bring in ~$600/side, so ~$1200.

I received a cost estimation with my pre approval letter of 85k which has my PITI as ~$650 so I'll use that. I'll also use 50% of PITI for operating costs (~$325).

$1,200 Rent - $975 = $225 Cash flow.

Bottom Line: The cash flow is definitely superior in this deal but my biggest worry is definitely the class of tenants this property would attract. I also have little opportunity to force appreciation unlike my second deal.

SECOND DEAL: SFH (2/1)

Asking price - $60,000 in a B neighborhood (Touring the property tomorrow)

Will probably need 7k - 12K in rehab.

ARV probably around 85k - 100k.

Since I was approved for a conventional loan I started looking at distressed SFH and this deal popped up. It's only been on the MLS for a day.

The property is distressed but from the photos, honestly just looks dirty and unkempt. I'll have a better gauge tomorrow once I step foot in the house. The house is located in a better area of Clarksville and when I look at Zillow, there are no houses under 100k within a mile vicinity.  Houses with similar Sq footage are 100k - 130k (but most have 3 beds). It also has a 20x30 detached garage/workshop which seems like a great sell to a future tenant. 

I believe I can bring in $750 - $900/month.

My PITI will probably hover around ~$550 (This may be a little high) and adding 50% as operating costs we come to a total of: $825

$900 Rent - $825 = $75 cash flow.

Bottom Line: I can force considerable more appreciation in this house and the refinance and take all my money out and repeat. I also think I can have a much better tenant in this property as opposed to the first deal.

They both seem good but for different reasons. I would love to get Bigger Pockets take on these deals and if I should pull the trigger on one or wait for a better deal to pop up. I probably missed quite a bit of information so if I did, just let me know and I can answer as best I can.

[Jonathan Bombaci]

I know this isn't super helpful, both deals seem okay and could work for some investors, but based on what you're saying I'd say you might not want to do either deal. 

The cashflow from the househack is interesting but if its in an area you wouldn't want to live in and you're expecting tenant issues then it probably doesn't make sense as a househack. 

From the SF standpoint if you're buying it as a strict investment property you're buying it for ~$70k ($60k + $10k rehab) plus closing costs ($5-$7.5k) to buy a property with $80k-$100k ARV. It will maybe generate $75 a month or $900 a year in positive cashflow, and that's with alot of assumptions using the 50% rule. That's a cash on cash return of only 3-4%, $900 a year / $27,000 ($12,000 20% downpayment + $10,000 rehab + $5k closing costs) cash into it. That just does not seem like its worth the risk to me. It may make sense if you BRRRR it, get it to appraise at $100k in 6 months and take your money back out of it but thats a different strategy to the one you're describing...

If you do proceed with either of these i'd suggest running them through a detailed calculator since the rules don't work for all markets/deals. You're going to want to do a more detailed analysis before putting in an offer.  

I think ideally you'll find a househack in an area you do want to live in. I'd suggest looking at some 3-4 units in an area you'd like to live in, close to work, close to friends, if you can find them that is. Sure they'll cost more but the extra rents should more than offset that. If it's in an area you'd like to live in you can buy it with a owner occupied loan with very little down, have the cashflow you want, and, assuming you pick a good area, some forced appreciation. It's very rarely about "which property should I pick" and more about defining exactly what you want and then going out and getting it. 

Sorry went a on little rant but I hope this is helpful.