Considering using a Heloc to split my current SFU into a duplex

[Hana N.]

I have 150k in my Heloc.

I am considering three investment options before me as I look at:

A. Putting 20k in upgrades to get my current home "rental ready". No permits required.

I would then rent out my current 3/2 home to a long term renter. My current mortgage is $2,500 and I can rent the home for $3,000.

Cash flowing at $500 ( minus maintenance fees.... So maybe not much cash flow )

Then... 

Putting a down payment of $120k on a multi family property about 90 min away... and living in one of the units.  Total Mortgage would be $3,300 but I could rent out the other unit for $1800.  ( My portion would be $1,500 plus utilities).

This option feels like something that could be done relatively quickly. But not cash flow as much. Still I would be saving on what I currently pay with my mortgage.

Or.... Option B...

B. Using a portion of the HELOC to convert my SFU into a duplex and rent both units out and get instant cash flow. I figure I could split it practicaly in half... and clear about $4,300 in totally rent. I just need to block/add two doors... add a small kitchen, separate the HVAC and update the electrical. I'm hoping to keep this under 30k. Is that unrealistic? Lol. Permits are required but my city is ADU friendly and mandates a less than 60 day approval process.

My current mortgage for my 3/2 (1,900 SQ ft)  is $2,500.  Rents for a 2 bedroom 1 bath home in my area go for about $2,500 a month. The one bed/one bath could get at least $1,500. Maybe 1,800. It's 900 sq ft.

This gives me about $1,800 in cash flow - minus maintenance fees. 

I would use the remaining $120k of my HELOC to put a down payment on the multi family property near me and live in one of the units. paying $1500 plus utilities after rent collected.

Or... Option C.

Use the HELOC money to buy a multi family unit outright...out of state.

No mortgage just the HELOC payment until it gets paid back.

Ok wise investors... What say you?

Thank you so much for your opinions and advice :)

[Dan H.]

Option A and B are likely initially cash flow negative when you include vacancy, maintenance, Cap ex, miscellaneous.  However, San Jose historically is a high appreciation market (affecting both market value and the associated rents).  The cash flow historically improves quickly.

I would be very surprised if you could do what you propose in option B for anywhere close to your estimate.  I suspect double would be a closer estimate.

Option C historically has low appreciation and slow cash flow improvement.  Also an OOS investmentis full of risk.

Historically option C has provided the worse return for a long term hold.  However, it has the lowest cost entry.  In addition, we do not know that the future will behave like the past.

If I were you I would not go the OOS route unless you have significant experience.  I have a difficult enough time to maintain my local team.  We had OOS properties that ran well until they got hit by a hurricane, twice.  Handling any issue is never easier from a distance than it is local.

I recommend all RE investors start local.  This includes both the high appreciation markets like San Jose, the high cash flow markets like Detroit, and combination markets (maybe Columbus is a good example). 

Good luck