It comes down to that consideration for me because after selling the home, you'll be down to 0 units.I prefer option #2 because it gives you the benefit of realizing gains in equity and expanding your rental portfolio.

lets take in consideration the house is in the middle nowhere and it takes months for the house to sale in the area.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Citrus Hts.

Purchase price: $310,000

Cash invested: $63,000

Sale price: $390,000

Bought low, rented for 15+ months and...

CapEx is included, but is considerably lower because it's a very new, excellent condition property (I considered things such as paint, appliances, flooring that would be needed while we still own the property).Purchase Price $350,000Purchase Closing Costs $1,300Total Project Cost $351,300ARV $350,000Down Payment $12,250Loan Amount $337,750Amortized for 30 yearsLoan Interest Rate 4.6%Monthly P&I $1,731.46Total Cash Needed $13,550.002% Rule 0.85%Initial Equity $12,250Monthly Income ($1500 per unit) $3,000 Monthly Expenses (Including CapEx) $2,607 Monthly Cashflow $392 Pro Forma Cap 7.28% Total Cash Needed $13,550.00Cash on Cash ROI 34.73% Purchase Cap Rate 7.28%Est Vacancy $150PMI $200Est CapEx $63Insurance $80P&I $1,731.46My only major concern is that I'm not meeting the 2% rule (and just short of 1%, even), but this is probably the closest property I've seen, and has a significant cash on cash ROI.

The Cash Flow is ridiculous.Over time, you get to understand that Cash Flow is something that only stays the same if you invested in something that is designed to do so like a Coupon Bond.Because I calculate the FUTURE Cash Flows out 10 years, I fully understand the true return of the Investments and how much cash flow I will achieve.The other thing to take into consideration is the Mortgage Balance reduction.If your investment is at break even but your Mortgage is a fixed rate, then one day, when that Mortgage goes away, your Cash Flow increases tremendously.When you take into account a 30 year projection of your Investment Cash Flows, you realize just how wealthy you can get by buying for FUTURE Cash Flow as opposed to Cash Flow NOW.It's really not RIGHT to pretend that the Cash flow you receive at the purchase is going to be the same throughout the holding period of the investment.

(the down payment is completely relevant to the seller)Interest- 7% is pretty standard...it's a premium paid for consideration in carrying the noteAmortization- 30-years is typicalPayment- I would look for the actual P&I based on the amortization schedule, but again, this is relative to the sellerBalloon- 48-60 months is common, and this is completely up to the seller as well (If sellers are leary of the time frame, I always agree to attempt a re-finance sooner...but no guarantees)Some extras:I always pay the listing agent's commision based on the transaction price...otherwise, you can structure a partial commission the first closing and a second commission when the balloon is due...waiting 48-months for the rest of your commission is crazy, thoughWe pay all the doc prep fees (note/mortgage/amortization/assignments/personal guaranty) Typically around $300, so not bad.- use the attorney at title and add it to the HUD-1We use a clause in the note that waives the right to defend a foreclosure in default, so the property returns to the seller without contest (varies from state to state I imagine)We also pay the sellers closing costsAll of this stuff is negotiable...you can always push things with these...like lower the down payment and have the buyer pay all your clients fees and your commission, etc.Give me a shout if you want to chat more about this topic.

I wonder about privacy considerations with regards to a bank's ability/willingness to share a client's info.It can potentially open up a can of worms in that regard!

Take into consideration that the guarantor also likely pays to live somewhere and has their own bills to pay. 

Just a bilateral agreement that specifies:The giver of the option, or optionorThe receiver of the option, or optioneeThe purchase priceThe term (start date and end date) that the agreement will be in effectThe consideration (typically a dollar amount) paid by the optionee to secure the right to buyPLUS whatever else your attorney thinks is necessary.Make the document recordable by your county clerk, get it signed (and possibly notarized), and then have it recorded on public record.The intent is to ensure that if he tries to sell to anyone else, a title search will find this agreement and trigger a title defect.

What factors did you take into account when estimating rehab costs and ARV--were there any STR-specific metrics or considerations you had?