House flipping is a real estate investment strategy that is becoming increasingly popular with many people all over the world. Flipping real estate basically involves buying an investment property and then quickly selling it for a profit. The duration between buying and selling an investment property is usually anything from two months to one year. In most cases, the fix and flip real estate strategy involves buying a distressed property, doing renovations or repairs and then selling it at a higher price.
A live in house flip is where the investor actually lives in the house which they intend to flip. Just like any other strategy for investing in real estate, a live in flip comes with advantages as well as drawbacks:
Pros:
- One mortgage – Most real estate investors find themselves paying a mortgage for buying a house as an investment as well as the house they are living in. In addition, they are required to pay other carrying costs such as property maintenance, utilities, insurance, realtor commissions, property taxes, and closing costs. However, if the house you want to flip is your primary residence, you will not have to pay a mortgage and carrying costs twice.
- Section 121 exclusion – If you have lived in your home for at least two years after buying it, you will be exempted from paying capital gains tax upon the sale of the property. Married couples filing jointly can avoid $500,000 of capital gains and individuals, $250,000 of capital gains.
- No pressure for a quick sale – In the conventional house flip, the house flipper buys an investment property with the intention to renovate and sell fast. In such a case, failing to find a buyer quickly can be very stressful since you are still paying the mortgage and other costs. However, if you are living in the home, you don’t have to worry about secondary expenses. In fact, delayed selling could allow you to find bargains on contractor pricing and real estate renovation materials.
- Sweat equity – You can cut down expenses significantly by doing some of the repairs and renovations when you’re on site flipping houses yourself instead of hiring others. However, before doing any work, visit your local authority and find out what you are allowed to do yourself and which tasks need to be done by a qualified professional. You might also be required to pay a fee before obtaining a permit.
Cons:
- Longer wait period – In traditional home flipping, you can buy and sell a property within less than one year. For an owner-occupied flip, you must wait for at least two years before selling it so as to avoid taxes on capital gains. With the rapidly changing real estate market, being unable to sell the property when the market is hot could mean great losses in potential profit.
- Living in the midst of renovation – Rehabbing a house and living in it at the same time is not a very pleasant experience. Besides having workers invading your personal space, you might have to do without basic facilities such as showers and toilets for some time. In addition, you might have to put up with pungent smells from paint jobs and stained floors. Conflicts with suppliers and contractors are also likely when the job is taking too long or is not being done properly.
- Damage to the home – When living in the house that you intend to flip, there is a great risk of damaging the work that is being done. Cabinet doors can be broken, marble counters scratched, and freshly painted walls defaced. The real estate investment risk is higher if there are pets or small children in the home.
- Designing for self – The purpose of renovating a home is to make it appealing to potential buyers or renters. However, if you are living in the flip, you are likely to design the investment property according to your taste and style. As a result, you might end up with a property that no one is attracted to.
- Having to move – Selling the live in flip means that you will eventually have to find some other place to live. Moving can be very stressful, especially if you are looking for another live in flip property.
So, how do you go about implementing a live in flip investment strategy?
The 4 Steps of the Live In Flip Investment Strategy
1. Know the Real Estate Market
The vision for your live in flip must be aligned with the current situation in your neighborhood. Find out what similar homes in your area have been sold for in the past six months. This will give you an idea of how to price your house and its after repair value. To get a good understanding of your market, look for a real estate agent that has experience working with properties in your area. You can also check out real estate comps on Mashvisor.
Related: Where to Find Neighborhood Data for Real Estate Investing
2. Set a Budget
Know your budget for completing renovation projects, making repairs, and selling the live in flip. This will require identifying major overhauls such as electrical and plumbing issues, as well as cosmetic repairs. An experienced contractor can help identify what needs to be fixed and the cost implications. You might also need to carry out a proper home inspection.
3. Consider Your Financing Options
You can either pay for the live in flip in cash or apply for a mortgage loan. Take time to research different lenders and their requirements before putting any money down.
Related: What Are Your Options for Financing a Flip?
4. Stage and Market the Investment Property
After carrying out repairs and renovations, you need to stage and market the live in flip property correctly in order to make a sale. Besides getting your house listed on real estate websites such as Mashvisor, you could also get the word out using different social media platforms. Be sure to display numerous high-quality photos of your investment property’s newly renovated interior and exterior.
Related: Home Staging and How It Can Amplify Your Return on Investment
When done properly, a live in flip can be a great investment strategy, especially for a new real estate investor. Within a few months, you can make renovations or repairs and sell the investment property for a profit due to the increased after repair value. However, when it is not done in the right way, a house flip could turn out to be a horror story and cost you thousands of dollars. So, be sure to know what you’re getting yourself into and take the proper steps for success.