Is a Live In Flip the right investment strategy for you?

I have been turning houses since 1998. My investment model is the “live-in-flip” where I live in the house while I am renovating it. This strategy definitely has its ups and downs, but it’s an excellent way to immerse yourself in the rehab market as a real estate investment to see if you like it instead of jumping head first into the deep end. If you consider this a new adventure for yourself, you need to understand the pros and cons in order to make the best decision about the future.

I bought my first investment property because I was tired of paying rent. I found a two-bedroom apartment I could afford – my mortgage payment was $ 7 more than my monthly rent. My brother lived in the second bedroom and went to school nearby. The apartment had good cabinets, ugly floors, and a broken dishwasher when I bought it “as is”.

I kept the cabinets, replaced the linoleum floor with ceramic tiles, repaired the broken piece in the dishwasher and painted everything. I bought this gem for $ 49,900 and sold it for $ 76,250 four years later. And since I lived there, I was able to leverage the purchase with a cheaper, self-used mortgage.


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Benefits of live-in flips

But just because it worked for me doesn’t mean it’s easy or everyone should join in. Let’s start with the benefits of live-in flips.

No income tax on sale

In 1997, Congress passed the Taxpayer Relief Act, which effectively exempts me from paying any capital gains taxes – as long as I follow a few rules.

  • I have to live there. It has to be my main residence in order to get tax breaks.
  • I have to own the house and live in it for two of the last five years.

It’s a government program, so there are more rules than just these two, but these are the most important points. If I follow these rules, as a married person, I can write off up to $ 500,000 in capital gains. If I were single I could write up to $ 250,000 in capital gains. And if you keep a careful eye on your expenses while renovating the home, you will maximize your bottom line.

No rush with complete renovations

Since I purposely chose a live-in-flip project that wasn’t huge, I didn’t have to work non-stop to finish it. The property was habitable from day one so I completed the repairs as I had the money and time.

When I moved to other homes with larger rehab facilities, I still lived in them and still took my time. For tax reasons, I couldn’t sell the property for two years. Taking my time in rehab took a lot of pressure off. Living in the house I work on allows me to keep investing without the time consuming commute. I don’t have to drive over to my flip while I’m there.

Save money doing it yourself

If you are already living on the edge you can do all the repairs yourself and save tons of money that you would use to hire contractors and large crews to get the job done. There may be a learning curve if this is new to you, but learning new skills will come in handy.

Plus, by doing the repairs yourself, you don’t have to worry about random people in your house all the time. For example, the carpenter who uses your bathroom when you need it is no problem. Your home is still yours as long as you live there.

Other mortgage financing options

House Flips gives you more financing options than if you lived elsewhere. For example, conventional mortgages are out of the question.

Cons of living in flips

While it a quantity Of the benefits of these clever investment methods, not all are roses. Watch out for these drawbacks.

Your home is always messy

If you are constantly working on your home, you always have to clean up some dirt. It can easily feel like it’s always a mess or that there is always something to clean up. This may not be the type of life you want to live if you really want a clean and tidy home.

Work and relaxation become blurred

With a live-in flip, you work where you live. There is always the risk that you will never really go crazy with your work brain. Seeing the kind of work you have to do all the time can force you to work until it’s all done. And because renovations aren’t usually small projects, it can be especially stressful. This can easily mean you have less and less time for yourself unless you can effectively plan your time.

Easy to forget you’re turning around

Remember, you are turning the house over to sell to other buyers or investors – not yourself. You have no long-term plans to live here. Renovating is a lot of fun and you are proud of the work you have done, easy to tie and maybe even want to put down roots there.

But turning a house over is like a job with a purpose in mind. Eventually, to keep making money and making this the lifestyle you want to live, you need to move on to the next home and a series of projects.

Not scalable

If you do it for the tax break, you can only sell a property every two years. And if you don’t do it for the tax break, it makes the whole process a lot less attractive.

Stressful

The construction site is a mess and it can be very depressing to come home every night and wake up with it every morning. This is also a reason why it is good to set a fixed schedule and stick to it. Keep certain living spaces renovation-free so you always have a place to relax.

While there are pros and cons to a live-in flip, there are ways you can make the process that much easier for yourself. They can be big projects that can be very stressful, but they are small things that you can handle and that make everything a lot easier. Here are some things to consider in order to make the best decision for yourself.

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Be organized

This is an important point for home hammering. If you do not have an organized workplace, you will sink into the chaos that drives you straight into the psychiatric ward. Know where your tools are. Know what the next steps in a project are and have backup projects to work on if you hit the hook or finish faster than expected. Pro tip: You will never finish faster than you expect.

Knowing where your tools are is a HUGE time saver. I have multiple copies of numerous tools because at some point when I needed them I couldn’t find them and I needed them right away. Somehow I always live near a major hardware store, and sometimes it was just easier to buy another one. Get yourself a tool belt and wear it proudly. Be the professional you are.

Knowing which order to do it in can also save a huge amount of time – if you hit a hook on a project, your entire work day won’t be wasted. Just move on to the next phase or project until you can resume the original task.

Prepare for demolition and drywall mayhem

You can tape and cover up as much as you want, but drywall will get everywhere. When you tear down the old, the dust gets into every crack and crevice that you didn’t even know you had. When you start building the new drywall, the chaos will find all the new cracks and crevices that you didn’t know you had.

In fact, drywall is one of the jobs I recommend. Professionals do it better and faster than you, for a little more than you would cost in material alone. To be honest, it would be a bargain for 12 times the price.

The only way to prepare for these steps in the process is to get as much of your belongings out of the house as possible. Store it or put it in the garage. Even moving it to another part of the house with the doors closed and a towel on the bottom of the door will help. However, don’t be fooled into thinking that this would clear the mess – it won’t.

Clean on the go

It goes without saying that your live-in flip won’t always be in pristine condition. The construction is messy. But cleaning up at the end of the day doesn’t take long, and you should allow a little time to make sure dust doesn’t get into other parts of the house.

Put your tools back where they belong so you can find them again when you need them. I always put tool racks in a central part of the house so that they can be found easily – in theory. But every now and then I wouldn’t put it back in place, couldn’t find it, and had to run to buy a new one.

Plan downtime

Like I said, life in a flip is stressful so I have breaks planned. Some were full-blown vacations to discover new places or explore the neighborhood, while others were just a weekend away or even just a night off. A mental break is important to avoid a meltdown.

Keep your focus

The whole reason for living in a house during a flip is to save money. Whether on renting or avoiding capital gains taxes on selling, living in a flip can save you big bucks. It can also test your reserve. Focusing on the bottom line can keep your wits about it.

This is how you can tell if this is right for you

Despite all of these tips and tricks, being a live-in pinball machine is not for everyone. Here’s how to see if this might work for you.

  • Do you really have enough time? As I said, living in a flip is a huge commitment. It’s like having a full-time job that you don’t get paid for. Make sure this is something that you can devote enough time to with all the other aspects of your life as this can easily take over everything if you are not careful.
  • Do you have the skills required? If not, are you ready to learn them? The life in your flip saves you money when you don’t have to hire people to do all the work. But you will end up spending even more money hiring people to fix your mistakes when you do something wrong. If you’re not willing to take the time to learn how to do things right, it will only cost you later.
  • Are you patient Not just how long flips last, but with yourself. As I said, you need to learn all of these different aspects of trading to get started.
  • Is Your Family Ready To Take On The Load? If you live with family or someone else during the flip, they’ll have to endure it just as much as you do. Think about everyone before making such a big decision.

Even with all the help in the world, things may not work and you need to know what is best for you. Flips are commitments that last at least a couple of years.

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