I want to talk about one of my favorite real estate investing strategies, especially for beginners. This is a concept known as a “live in flip”. Everyone knows about flipping houses. Flipping houses is where you buy a house that needs a bunch of work at a discount, make it real nice, and sell it for much more than you spent to buy and rehab it. Everyone probably knows how risky flipping houses can be as well if you don’t know what you are doing. I like the live in flip for a multitude of reasons and think it is a good strategy for someone to start off with if they are interested in potentially pursuing flipping as their go to investing strategy. It can teach them how to handle contractors and also how much it costs to fix certain things.
The basic premise behind this strategy is that you buy a house that needs some work but plan to live in it as your primary residence. You want to buy one that is habitable so you can get a loan on it but something that needs enough work that you can still get it cheaper than a retail home and have some room for profit in the end. Good candidates for this are structurally sound houses that just need some prettying up. A lot of the renovations on houses like this can be done gradually over time because they don’t interfere with you being able to live there.
You have to live somewhere so you are going to be responsible for a housing payment regardless of where you decide to live. The live in flip kills two birds with one stone. You are combining an investment with your primary residence. There are a few advantages to flipping a house this way over flipping one strictly as an investment.
To start, buying a property as a primary residence gives you more favorable financing terms as you can get a lower interest rate as an owner occupant compared to an investor loan. Not to mention, there are multiple low down payment loan programs you can use if you are buying as an owner occupant as well. There is even the USDA loan, which allows you to get a house with 0% down!! This is more prevalent in places like Beaver and Butler counties, as the house location has to be considered a “rural “area.
You are also able to take your time with the rehab and resale on a live in flip. On a regular flip, you have to worry about all of the holding costs eating away at your profits the longer it takes to rehab and sell. This is not the case if you are living in the property because you are paying them regardless. There is also much less risk. If a contractor doesn’t show up on time or messes something up, it doesn’t completely mess up the rehab. It is no big deal if this happens because you are living there and aren’t in a time crunch. You also save gas money with a live in flip! Since you are already at the property, you won’t have to drive back and forth all the time. This is a great advantage with gas prices nowadays.
Perhaps the biggest benefit of a live in flip is you pay NO TAXES to sell the place. There is a code in the tax law that states if you live in a property for at least 2 out of the last 5 years and then go to sell it, you pay no capital gains taxes. Your profits are straight money in your pocket instead of giving some of the gains to Uncle Sam.
I think being able to take your time with the rehab and pay no taxes in the end make the live in flip a great strategy for new investors. You can essentially get your feet wet with flipping houses to see if it is for you rather than going out and learning the hard way if it is or not. You are already making a payment to live somewhere, so why not get some extra money at the end of your time living there? Keep this strategy in mind if you are debating getting started in real estate!