BRRRR vs House Hack, with a Twist

[Brett Baginski]

Hello BP,

I am looking to get started in real estate investing with rental properties and am having a hard time deciding on the best path to take, based on my current setup.  Hoping to hear some thoughts from the community.

Quick background and slight twist: I currently own a 2 bed, 2.5 bath townhouse in NJ. Mortgage $1,395 plus $265 HOA = $1,660 per month. I also have a HELOC for $50,000 that I closed on yesterday. The funds should be available in about two weeks.

Scenario 1: Look for a potential BRRRR property in NJ and stay in my current residence. Continue down this path and keep rolling the refinance proceeds into the next deal. I am currently set up on MLS emails for Multifamily properties with an agent and look everyday, but it is hard to come by deals I can afford.

Scenario 2: Put my townhouse up for rent and find a Duplex I can house hack with an FHA loan and 3.5% down. I have the ability to temporarily move back in with my mom until I can find a property while I rent my house out. Not ideal, but I would be willing to do this if it could be the better option. Zillow's estimate says my place can rent for $2,300 which seems way too high. Rentometer comes in around $1,900 as the median.

My thoughts: Scenario 1 might be harder to come by. Most properties I find that could work for BRRRR in NJ, based on the funds I will have with the HELOC, are in foreclosure. Is this a more difficult and time consuming process?

In scenario 2, between the cash flow from renting my townhouse and the rent charged for a duplex, I can potentially live for free while house hacking and start with 2 rental properties instead of just 1. Only downside is I would also be paying back my HELOC because I wouldn't be able to refinance the duplex with no equity built. So this may really delay my ability to jump into the next deal.

I'd appreciate any and all feedback.  Thank you!