Background and Current Situation
I currently own a home in Clovis, CA with $472k owed on a $487k mortgage. My total payment is $3500 (including escrow); it could rent for around $2700. The property is in a prime location, close to Old Town Clovis, Fresno State, and outdoor activities.

My debt-to-income (DTI) ratio is currently at 50%, but will drop to around 38% in April when my average income increases to $144k (its already there but for loan reasons it needs 2 years of tax returns).. I have an 800+ credit score and access to over $100k in revolving credit and much more than that in personal loan offers, but currently have less than $10k in cash reserves, which I plan to build back up to $20k in two months.

My mom, in her mid-50s, wants to invest in real estate as a means to improve her retirement. She owns a home 45 minutes away, with a $1100 mortgage payment and potential rental income of $1400 from the house, plus $500 from a mother-in-law suite (already rented). She’s been advised to move her $35k 401k into real estate investing, and she wants to move closer to me.

Potential Investment Property
I've been actively seeking investment properties and have built a relationship with an experienced broker. She recently presented an off-market property in need of significant rehab. The property owners will be asking $170k, but it needs an estimated $60-80k in repairs. After rehab, the ARV is projected at $320k, which could yield $55-65k in profit from a flip (after taxes), or a ~5% cash-on-cash ROI if we choose to BRRRR. Rents increase 5% annually on average here.

My mom is excited about the opportunity and is willing to contribute her 401k towards the 15% down payment on a hard money loan or less if we find private financing. We would both contribute to the rehab and I would repay her half of the initial investment. We're bringing a knowledgeable general contractor to the property walk-through next week to assess potential risks, and I will also check the HVAC and electrical systems myself, as I have some experience in these areas. Also to note my brother is a journeyman plumber who is willing to help on any plumbing repairs should they come up.

Financial Considerations
The numbers look good using the BiggerPockets calculator, but I have concerns about our ability to pull off a BRRRR strategy due to cash reserves and DTI constraints. Here's what we're considering:

Flip vs. BRRRR:
- Flip: Yields a potential profit of $55-60k after capital gains, assuming rehab stays within budget. This could be a safer bet as we wouldn’t have to deal with cash flow concerns post-rehab.
- BRRRR: If we refinance at $256k (80% LTV of ARV), we could pull out most of the invested cash. However, holding costs would be about $2600/month, and rental income would only be around $2300/month, leaving us with a small monthly deficit until we could get an FHA/Conventional loan as my DTI is too high to qualify for FHA or conventional loans until my income average increases in April. My mom has poor credit and about $30k in revolving debt, so it would be difficult for her to qualify alone.

We would both prefer to hold the property, but the risk of tight cash reserves is concerning, especially if the rehab costs exceed our budget.

Legal Considerations
If we decide to proceed, we’re also weighing how to best structure this deal:

LLC and DSCR: Would it be better to put both of us into an LLC and use it to apply for a DSCR loan? Does this affect the DSCR in any way? We have found local lenders with good terms, through the broker, and other ones as well.
FHA/Conventional: If we go the FHA route, how do we structure the property as a business after the one-year occupancy requirement? Would the same structure work for a conventional loan?

Walk-through and Rehab Concerns
I’m confident in our ability to handle the rehab, especially with my mom’s hands-on experience with home repairs and the expertise we can pull in from family members (GC, plumber, etc.), and my few years of experience in the past as an apprentice plumber. However, I’m still mindful that this is our first deal, and I want to be prepared for potential surprises.

Here’s what we plan to check during the walk-through:

- Overall condition of the HVAC system (I’ll test it myself with HVAC multimeter)
- Electrical issues (I'll assess as well)
- Plumbing, which my brother, a journeyman plumber, can help with if needed
- Any significant structural concerns, mold, foundation issues, etc. (any thoughts here?)
- Measurements of all sheetrock, flooring, cabinetry, counter tops, etc that need to be replaced for estimates.

We’re both ambitious but also realistic about the risks. We feel that this deal is within our risk tolerance but want to avoid financial strain if things don’t go according to plan.

Questions for the Community

- Given the financial situation, would it be better to pursue a flip or BRRRR?
- How should we structure the deal legally for a BRRRR strategy? Would creating an LLC impact the DSCR loan qualification?
- What should we look out for during the walk-through to mitigate unexpected expenses?
- Do you have any advice for first-time investors tackling a rehab-heavy property?

I appreciate any feedback, advice, or thoughts on this potential deal. We're excited but also want to make sure we approach this in the smartest way possible!

Note: I put $240k as purchase price because the rehab is rolled into the hard money loan.