Have you guys heard of the live in flip concept? You know, where you buy a home that’s in need of repairs and/or cosmetic upgrades, fix it up over the course of 2 years (time frame can vary, I’ll go into more detail on that below) and then sell for a profit.
There are so so so many advantages to doing a live in flip and I highly recommend people try this out at least once in their lives, especially if you don’t have kids because we all know they can add a whole other layer of difficulty to the live in flip concept.
So why should someone buy a fixer upper and do the live in flip strategy?
There are so many reasons a person might want to consider doing a live in flip. Not only do you have the potential to gain sweat equity but you can also avoid some hefty taxes as opposed to doing a quick flip.
Below, I’ll go over my top reasons why someone should employ the live in flip strategy… at least once in their life.
But for those crazy enough, you could potentially do a live in flip every two years and NEVER have to pay short term capital gains! Of course that would mean moving every two years, constantly living in a rehab zone where it’s impossible to contain dust and never being able to leave the flip site where you’re constantly reminded of what you haven’t accomplished.
I would know about dust. We’re renovating our attic and turning it into a master suite as well as finishing one of the few areas of the house we didn’t finish before moving in to our fixer upper. All of which entailed framing, taping and mudding, tiling, basically all the dust creating things.
So anyway, back to this live in flip strategy stuff. I’ll start with the most obvious reason for doing a live flip.
Equity
I hope everyone understands the concept of equity, but for those that don’t, equity is the difference between what you owe on your home and what the home is worth (market value of the home.)
The idea is to purchase a home that needs some work and fix it up over a specific time period. In theory, the house should increase in market value by more than just the cost of the renovations you put into the home, therefore creating equity.
When you sell, the equity is where your profit comes from and you’ll often leave the closing table with a big fat check.
What I love about equity is that it gives you OPTIONS, which I’ll go over in more detail below, but with a live in flip you never know when you’re going to need options. And equity equals options! For example, what if when you’ve completed all the renovations, you decide you don’t want to sell but you were counting on the profit from the sale of the live in flip? Well, you could refinance the house and pull some of the equity out of it in the form of pure hard cash. (By getting another mortgage or getting a HELOC on the house.)
Capital Gains Tax
Capital gains tax is one of those pesky things the government imposes on real estate (among other things like stocks & bonds.) You pay tax on the difference between what you purchased the house for and what you sold it for.
But you can sometimes altogether avoid the capital gains tax if you’ve lived in the house for 2 of the last 5 years prior to selling! If you file taxes as a single person you can exclude up to $250,000 (and $500,000 for married couples) in gains or profit as long as the home was your primary residence for two years… another interesting thing to note is that the 2 years don’t have to be consecutive!
For example, you could purchase a live in flip, fix it up, move out after a year and then rent it out. If the tenants move out after 2 years and you move back in for another year, you could still sell the home and claim it as being a primary residence for 2 of the last 5 years. Cool right!?!
You Need A Place to Live Anyway
Unless you’re living at home with mom and dad rent free, you’ll be paying for somewhere to live. (And if mom and dad aren’t charging you rent, you better be saving every penny of that for a down payment on a live in flip.)
So why not make the most of paying for somewhere to live and create equity – equity that you can profit from when you sell (or refinance!)
If you already have a full time job, you’re home could be thought of as you’re side hustle, or part time job. The best part about that is there’s no commute, you’re already on the job!
Financing is Cheaper
If you’re looking to do a flip but don’t have the cash, can’t find a lender or partner or are afraid to dive into the world of flipping, a live in flip strategy is a great way to go! Especially because the financing is cheaper for owner occupied homes.
If you go with an FHA, VA or USDA loan you’ll be putting very little cash into the deal and if you go with an FHA203k loan you could potentially wrap your remodel costs into the loan!
The loans mentioned above are usually a little more expensive over the life of the loan but no where near as expensive as hard money or a private loan can be – which is what a lot of house flippers use.
I know no one asked, but in my opinion you should put as much money down as you can and still have enough to fund the renovations UNLESS you’re planning to invest that money in something that will give you better returns than paying more for your loan.
Multiple Exit Strategies
Exit strategies in real estate are so important and it’s something a lot of people don’t think about. By exit strategies I mean, what are you going to do if you can’t sell it? What other options do you have?
When you do a live in flip, it gives you tons of options! You could potentially stay in the home forever, you could rent it out, you could refinance it or you could employ a long term brrrr strategy on it. The options are limitless!
Options can be incredibly convenient in many of life circumstances… like if the market was seller’s market when you bought and is a buyer’s market when you sell, a family member gets sick or you get sick – you have choices!
What I like about the exit strategy options that real estate offers is that there are more creative ways to use real estate than say stocks, bonds or mutual funds – all you can you do with them is buy, sell or wait! With real estate, the options are only limited to what you can imagine (and what you can ensure is legal with a good real estate attorney.)
Now do you see why a live in flip could be A-W-E-S-O-M-E!?!
Do you know what would be even more awesome? If you house hacked while doing a live in flip! Yup. I’m saying you should buy a small multifamily (2-4 units) that needs work, live in one, rent out the others and over the course of two to five years fix it up and sell! You’d have tenants helping pay down your mortgage (creating equity) and benefit from the sweat equity you put in while fixing it up! Say whattt!?!
Okay I know I’m getting a little nuts… so if what I just said scares you, stick with the single family (and maybe get roommates?!?)
This is the type of real estate that fascinates me. If this sounds like something you might be considering let me know, I’d love to help you out! I’m a PA licensed real estate agent with investment experience.
In the meantime, check out these other flip related posts I wrote!
Check out the before and after pictures of our first flip here.
5 Ways to find a house to flip (some you may never have thought of!)
Be sure to reach out on Instagram; Facebook; or Pinterest; and subscribe to this blog to be notified when new blog posts are up – who would want to miss those!?! (And if you’re a fellow blogger submit your website! I love finding new blogs to read, pin and share!!! It’s so hard to find a good quality blog nowadays, you know what I’m saying?)
[contact-form-7 id=”3255″ title=”Contact form 1″]
