I have been in contact with zoning in my city and have a decision to make: I can either split my property in half (zoned as duplex) and build a small house back there to rent out, or I can buy a foreclosed house elsewhere (closer to work) and fix that up to rent it out.
Here's some rough numbers.
For the house in my yard, I estimate it would take ~$20,000 to build. It would probably rent out at $400 once it was finished. Of course, I will be renting out the house on the other side of the property eventually, and I suspect I might lose $50 or $75 a month from that rent due to having a smaller yard. So let's assume I'll only get $300 a month in profit from the $20,000 house. That's still beating the 1% rule (1.5% to be exact).
OR...
I can buy a foreclosure around here for approximately $35,000. I can make maybe $10,000 in repairs and end up renting it for $700 a month or so. That's common. That is 1.5% again. Keep in mind if I did this I could live closer to work and save money that way.. but still, pretty similar.
So unless I am missing something terribly obvious, then the money situation looks similar for both. The problem is, I want to do most of the work myself and am not particularly handy (yet). So... does anyone have any experience building a ~400 sq ft structure with utilities? Is it significantly harder than fixing up various parts of a foreclosed house? All things being equal, I'd rather take the easier (read: less work for me) option, because both ideas are equally appealing to me.
Any input? Anything I haven't taken into consideration with building a living unit in my backyard? Seems like not a lot of people do it..
Thanks!