FLip or BRRRR Method. Help me understand.

3 Replies

I have a 1300 SQFT SFR foreclosure I bought back in December. This property will be done with Rehab by August i estimate. I'm stuck on whether to Flip the home or try doing a BRRRR. The reason I am leaning towards the BRRRR strategy is that this home is down the street from my parents house in a good location right off the highway. It also has a separate mother-in-law type of apt which is where i currently live in. This little house is about 600 sqft and has its own electric meter. It has kitchen/room/LR/BR. All the good things for a person like me that has no kids. So it's basically two houses i have in this one lot.

The reason to sell is of course to make some cash money.  I want to turn a good profit and use that money to keep reinvesting. My money is tied up with this property. I borrowed the money to buy this house from bank using my vehicles as collateral. The Rehab portion I've been funding with my own money and money from my cash flow from mobile home rentals that i have.

Numbers:

Purchase Price:$25,100.00
Afterclosing costs:$27,000.00
Rehab:$10,000.00
ARV: $100,000.00
Holding Costs(Interest Paid to Bank):$2300(10monthsx$230)

My Point of view is that if i flip it, i can take my money and go. Pay off the loan i have, Pay of my credit cards, and have cash money i can use toward my next purchase or keep adding Mobile homes to my small trailer park i have going on. But if I sell, ima have to find another place to live.

If I refinance this house, I get to keep the house. I can rent it, and house hack by living in the mother in law apt. I don't want to do this because this feels like just borrowing money and now I'll have a mortgage hanging over my head. I understand the tenant i put in there will be paying rent, but there's something about it that makes me not want to take that route. I believe this house can rent between $700-800/month once rehabbed.

Is there something I'm not seeing?

Flipping is a short term strategy, kind of like a job that pays pretty well right now but you have to keep working it to keep getting a paycheck. BRRRR is a long term strategy, that will pay dividends for years but not give you as much cash right now.

Since you're living there, if you really want to flip it, you should wait until you're there for 2 years then sell it - you'll keep all of your profit. If you sell it now, and you don't have something more expensive to put the money back into, you'll pay capital gains on that sale, and since you're there less than 1 year that's going to be a big hit. 

If you can refi $70k out of this property, live on it and charge $800 rent to whoever's living in the big house, you've landed in a big pot of found money. You'll have a tenant paying the mortgage plus some, you get all your money plus some back out, and you don't pay any taxes. 

@JD Martin I like that. And that is exactly why i was looking into the BRRRR. If i was to be able to pull out 70k, I'd still have to pay back the 25k so that would leave me with 45k though.

Short term capital gains is 25% I believe so if i profit lets say 50k
I'd be paying over 15k in taxes. Sound correct?