Congrats on getting your first deal under your belt! That’s a huge milestone.
Looking at the numbers, you're sitting on a solid property here. A $345,500 purchase price with an ARV of $625,000 gives you a lot of room for profit, even after rehab costs. Your rehab budget of $120,000 (which seems reasonable for a full gut) is also in line with the value you're creating. The rent in the area is great too—$3,500–$4,000/month gives you good cash flow potential if you decide to hold it.
As for whether to flip or BRRRR, here's what I'd consider:
- Flip: If you sell after the rehab, you’ll walk away with a significant profit. It’s quick, clean, and you can reinvest that cash into another deal. If you’re really set on building a portfolio, this might be a good way to go since it’ll give you the liquidity to take on more properties.
- BRRRR: If you're leaning towards long-term rental income and portfolio growth, the BRRRR method could be an attractive option, but you're right to consider the numbers carefully. After rehabbing and paying off your hard money lender, you might not have much left in terms of equity if you need to refinance. The key question here is whether you're comfortable with a relatively low initial cash-out and whether the property's long-term cash flow makes up for that.
Since your goal is portfolio-building, the BRRRR method could work, but the numbers have to make sense for you. If the rent is $3,500/month and you have around $300,000 in total costs (purchase + rehab), you're looking at around a 10% cap rate assuming financing works out well. But if refinancing doesn't leave you with enough equity for future deals, you might be better off flipping for cash and avoiding a lot of refinancing headaches in the short term.
If you're planning to buy your sister out and retain full ownership, you'll also want to ensure that the numbers still make sense on a long-term hold. If you're concerned about paying personal capital gains tax, remember that flipping the property means you'll take the profit all at once, while with BRRRR, you can defer some taxes and have the property generating income.
So, here’s what I’d do in your shoes:
- If you can make a decent profit flipping and then use that cash to roll into your next investment, you might be better off taking the cash, at least for the first project. There’s no harm in making some quick profit and reinvesting.
- If you're thinking long-term and are okay with the more complex refinance and buy-out process, BRRRR can build your portfolio, but just be sure the cash flow and potential appreciation make it worth the hassle.
