A bit conflicted- flip or brrr

[Rigo V.]

my ultimate goal is to generate enough cash flow to retire early. 

I have about 40k plus a 50k heloc on my primary home. I am conflicted on whether to flip a property first to generate more cash or to just begin looking for a property to brrr? 

[Clayton Mobley]

@Chris Ellis in terms of risk, a lot of the same risk inherent in flipping are still there with BRRRR - namely that if there are hidden issues, you contractor bails or does shoddy work, or it turns out you can't find a buyer/tenant, you're in trouble.

However, as you know, with BRRRR you still pull out cash when you refinance the rehabbed prop - ideally, you've forced enough appreciation through your rehab that you can pull out everything you put in, or even more. So in terms of having capital to work with, you'd still be sitting relatively pretty - though perhaps not as pretty as with a very successful flip. Plus, if you do the BRRRR correctly, you also have a cash flowing rental under your belt.

You also should consider the fact that a flip is considered inventory under tax law, so you'll pay normal income tax on that gain and self-employment tax. You can't do a 1031 exchange on a flip, because (while there is no hard and fast rule about how long you need to own an investment for it be considered 'long-term') you must be able to display your intent to hold the property for the long-haul. And buying something, rehabbing, and immediately selling is almost always not what buy-and-hold investors do. That means you're paying taxes on those gains, and lots of taxes.

Now, my gut would say BRRRR, because I'm a fan of having flowing rental properties. First, you should find out which banks would be willing to refinance an SFR rental, ask around on BP for recs. Then you need to ask about seasoning periods etc. Since you are a new investor this might be slightly trickier just because the bank doesn't have a relationship with you yet. Homework is a huge part of both these strategies, as you know.

You could go either way, and both have risks, but your immediate hesitation about flips tells me that you would be more comfortable with the BRRRR method and honestly, a little piece of mind goes a long way in REI, especially in the beginning.