First time RE investor. What am I missing?

[Shane Kunkle]

Hi All! First time RE investor living in CA. I've been doing my best to build my knowledge base for the past 2 years reading books, listening to pod casts, etc. and its finally time to take the leap. I have ~$250K via a private loan to invest and I am debating between two ways of doing this (or possibly both) -

1. BRRRR deal - I understand that with rates being what they are, me being a first time investor and me wanting to invest from a distance, it makes a BRRRR deal increasingly more difficult but I'm not in a huge hurry and of course the ROI on a BRRRR (when done right) can be great. The market I'm considering is Jacksonville FL with a PP of $100K for the house and $50K (max) for reno. Jacksonville has a decent diversity of industry, has homes within my buy box and is of course in a business friendly state which is the reason I am considering this. With this option, I would have $100K left in reserves which would keep stress low :-)

-OR-

2. Move to a new home in our city in CA and rent out our current home which will cashflow for approx. $800/month. My concern with this is, our monthly payment on the new house ($500-600K house w/ 20% down [$100 -$120K] = ~$3500/month) plus the private loan monthly payment ($1000) would make things tight (but still doable) for our monthly expenses which is not my favorite idea. Additionally, getting our money back from investing a portion of the private loan in the new house would be much slower than if we were to do a well-executed BRRRR deal. I know that would still have $150 to $130K remaining if i only put 20% down but I'd want to keep at least half of that in reserves so I don't think I'd be able to do both a BRRRR and buy a new primary (while renting out my existing). The other thing is, other than my existing primary res, I am not real interested in investing in CA real estate. Mostly because it is expensive in general and because it isn't super business friendly state (taxes, etc.).

Let me know what I am missing! Any advice is hugely appreciated.

[Nicholas L.]

@Shane Kunkle

I'm not going to advise you on choosing between 1 and 2 - too personal.

But I'll offer this on 1.  Do you know the Jacksonville FL market, or did you just choose it based on the factors you listed?  Here's why I ask.  BRRRR is extremely difficult right now. Purchase prices are still high, contractors are booked up, materials are expensive, rates on refinance are higher than they have been in recent times, and there is tremendous competition even for off market deals.

So, you would really have to buy well to be able to complete a BRRRR, and with a private money loan for the entire amount you really need to knock it out of the park and get all of your cash back out so that you can pay the loan off. So if you are going to struggle to find the right property due to the distance, it's just going to be tough and risky. I say this not to discourage you but as someone who is doing BRRRRs locally and finding all aspects of it tough.

And if you're borrowing 250K, I would not look at any amount of that as reserves.  The whole thing is a loan. 

Hope this helps.