How Should I Use Loan From Parent? BRRRR vsLive-In Flip vs.Rental

[Khaleel Jenkins]

Hey Everyone - My girlfriend and I live in Orange County, CA and are 25 and 24, respectively. For work she does tech recruiting and works remotely, while I work as a project manager for a custom home, design-build company, based in Los Angeles. Though I love what I do for work and see myself remaining in the industry long term, we are passionate about achieving financial freedom and understand the opportunity available through real estate, to accomplish this. That being said, with our lack of experience and the state of the current market, both nationally, and especially here in California, we are suffering from analysis paralysis and instead doing nothing. 

We're familiar with various strategies available: BRRRR, House Hacking, Live-In Flip, etc. However, we aren't quite sure which direction to head down. Due to my familiarity with construction, we are leaning towards BRRRR or a Live-In Flip, but based on our financing scenario, we are seeking advice from the BP community.
 
On one hand, though we make decent income combined, we are not in a place where we are able to invest our own capital in such an expensive market here in California. On the other hand, we feel uncomfortable trying to manage the tasks necessary in long-distance investing, in our first deal. Our ace in the hole, however, is that we have parents that are capable and willing to serve as a hard-money lender of sorts and give us extremely favorable rates. Though this is obviously an enormous benefit to us, we want to ensure we are maximizing the opportunity for both parties involved and is where we are stuck on which strategy to employ. 

To the seasoned investors out there: with our experience and familiarity in the construction industry and the opportunity to receive financial backing from a parent, what are strategies we should be looking at? How should I be running these numbers to present to said investor? If going the BRRRR route, what are things to beware of? Are there other strategies I am not looking at?

Ultimately,  our goal is to maximize the capital for both parties involved and hopefully use this initial investment to accomplish 2 things: 

1. Get in the game and create some equity or immediate capital (hopefully both) 

2. Prove to our investor (parent) that we have identified a strategy or set of different strategies that we know how to execute on to make ourselves money as well as them. 

Any guidance, tips, suggestions, potential mentorships, etc. would be greatly appreciated and I look forward to hearing from this amazing community!

[Wilson Phu Bang]

Hi @Khaleel Jenkins

I think these are all wonderful questions and the beauty is that you have many options to choose from and locations for that matter. I personally always recommend to try to do something closer to home before jumping to long distance as it becomes easier to manage but you can definitely do long distance if you have the right systems and teams in place.

For myself personally, it comes down to how much I can afford for a down payment and that determines which route I go. If I go through the BRRRR process I need to have about 20% or 25% down and expect to pull that money back out, now you can get private money or HML to go help with that but this is probably the precursor for just starting is the amount of initial capital

For Househacking, you can get a property for a lower down payment and offset higher mortgage and taxes with roommates, etc. 

If you have friends that would want to rent with you during the process, you can try to house hack into into a fix and flip where you buy a property and do a rehab that first year and eventually you can decide if you want to BRRRR it back or sell it as a flip, in my opinion it comes down to what makes sense for what you are trying to do. The beauty of a BRRRR or a flip is that you still have to analyze the numbers for both scenarios and can decide at the end if you want to retain it as a rental or flip the property. The key is to just find the deal (and of course financing on the purchase and the refi).

I would focus your efforts on just finding the deal and then deciding which method to go forth thereafter.