Flip Then Own Outright Vs. BRRRR

[Ryan Kinney]

Today I got in an argument with my father (who is also a real estate investor) and a friend of mine over the best method to use to generate long-term wealth. One method would be to flip 3-4 homes and use the profits to then roll right into buying a rental. You then own the home outright and it cashflows wonderfully, however, your money then becomes locked up. The second method would then be the BRRRR Strategy favored by many on BP. The issue here is finding a portfolio lender or private money lenders.

For Example:

Buy a home for $42,000 and spend $45,000 on repairs so total expense is $87,000 

The after repair value of the home is $130,000. The home would rent for $950/month.

Monthly expenditures including mortgage and capex are approximately, $650 cashflowing roughly $300.

At an LTV rate of 75% the new loan amount would be roughly $97,500 plus fees so roughly $102,000. Leaving you with $10,000 extra on top of the previous money invested to roll into a new deal.

The second method would do several more of these flips say 4 netting approximately $30,000 to then buy a rental at $120,000 that also rents at $950, Casflowing roughly $700 after expenses.

So I made the argument that in the first method you not only gain all the equity you would off the flip and still have a rental. They, in turn, argued that $300/month is not worth the headache of being a landlord.

I'm curious what other investors think?

Thank you!