In need of some advice for first property

[Christian Licata]

Hi, i'm 22 and have about 250k to start investing with. Ive been having some analysis paralysis about not knowing what would be the best option for my first ever property. Ive been trying to decide between; flipping a house that's on the market, flipping a foreclosure property, building a spec house or doing the BRRR method. I live in California and most likely won't be able to do much here because of expensive prices. I have family in Knoxville Tn, so I've been planning on investing there. It would be out of state for me but my job is very flexible and I would be able to spend some time in Knoxville if needed. Also I have a family member in Knoxville who has background in home repair and is willing to help where he can. So my question is, if you guys where in my shoes what would you do? Any advice would be appreciated. Thank you!

[Randall Alan]

@Christian Licata

First, start off deciding what your objective is.  Most of what you mention is flipping, which can give you big chunks of cash when you sell, but comes with inherent risks and challenges… not the least of which is you being out of state trying to do them.  They also come with a 15-20+% tax bill when you sell them.  
In today's market you need a GREAT spread between your purchase and ARV values and that isn't the easiest thing to find in a high market.

Being brand new you may not know all the ins and outs of flips… but it’s easy to get exploited in a number of ways by people you hire to do the work. Flips literally come with thousands of small decisions, and if the decision maker isn’t on site to oversee those, you will likely show up and have a lot of “that’s not the way I wanted it” type of results.  Just getting contractors to show up can be a challenge, and if no one is looking over them they take ‘creative freedoms’ on how and when your job gets done. 

While slightly more “boring”, with the amount of money you have to work with you could probably finance 4-6 $200,000 rentals and generate monthly income that could go a long way towards replacing / supplementing  a descent portion of your W2 income.  If you cleared $300/month per rental that’s $14,400-21,600 / year in cash flow.  You also have 4-6 properties appreciating at market rate.  Even if that was only 3% - that is $24-36k of equity you are building YEARLY on $800,000 - $1,200,000 worth of real estate… so in 10 years that would be $240k - $360k of additional profit you would make if you sold then.  Plus, you get to depreciate the properties by 3.3% a year on your taxes - saving you $26k-40k of taxable income as well… all while your tenants pay down your mortgage with their money.  
The amount of effort versus a flip is so much less, and your taxes are WAY better.
There is a lot less risk as well.  Flips - especially your first few - can be somewhat dangerous if you misjudge your expenses or run into unexpected expenses.  It’s easy to go over budget or not realize all the items you need to account for until you start ripping into things and suddenly your ‘profitable’ flip is upside down.  You also have to close twice on flips… once to buy it, and then to sell it… so closing costs should not be ignored.  There are also holding costs to consider including insurance, utilities, and potentially financing costs if you didn’t buy the property outright. 
The thing about flips is that they are ‘one trick ponies”… you only make money once - when you sell them - then you have to start over and find a new one, whereas rentals deliver their income month after month, year after year.

We have done 6 flips and own 37 rentals.  They both have their good and bad aspects… but rentals are far easier day in and day out.   Flips in today’s market are more challenging and take a lot more effort.

Hope it helps!

Randy