Bad Appraisal, should we brrrr or flip?

[Sarah Linkenhoker]

Purchased a property a few months ago, this was meant to be our first official BRRRR but appraisal came in lower than expected and we are wondering what to do.

Purchased the property for $265,000 (This included $212,000 from the bank and about a $60,000 private loan) The home is a SFH that we have speced to convert to an up/down duplex.

The appraisal came back at $421,000 (which was for a SFH with an ADU). This means that we've got about $124,000 in remodel budget from the bank to work with. Based on the estimated project costs, $124,000 is at the lower end of our budget, I think we can do it, but there will not be much wiggle room.

Let's say we can complete the project in that budget. That means we are sitting with a loan from the bank for $336,000, but we need to pay back our private lender the $60,000 out of our own pockets (potentially a refinance of another property). 

If we keep the property, we are estimating the total monthly income from both units to be $2750. The mortgage would be $2140+insurance+tax+buffer = $2650. So we are looking at $1200 in cash flow annually. 

Other option is to flip the property. After talking to our real estate agent, I'm thinking we will be able to clear $500,00 with potential to $550,000. 

As much as I want to be a buy and hold investor, it seems like there has to be a better deal out there. We are leaning towards selling, but I want to know if anyone has a different take.