The most friendly and simple investment strategy in real estate investing is live-in house flips. Did you know you can own a home for free in just six years? Yes, it’s possible. Live in-house flipping is the best approach to make you a homeowner for free.
You might buy a home below the market price, renovate it and move in without any other intention. But as an investor, you are sleeping on an opportunity that can get you good returns. This home can be a foundation for you to get into real estate investing easily.
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How live-in house flips work
After renovating your home you only need to stay for two years to get the tax free benefits when you go to sell it at a higher price and make profits that are tax free.
Next, you move out, buy another home using the profits you made plus some additional funds. Repeat the same process. Refurbish it, stay for two years and resell at a better price.
You will notice the more live-in house flips you deal in, the more you are getting away from debt. Over time you will only be using your profits to acquire homes. This is likely to happen after reselling your third home which will be after six years. Your fourth home can be bought from pure profits.
There is a tax exemption on capital gains if you live in your house for a minimum of two of the five years prior to a sale. It’s advisable to make use of this tax benefit and sell your house after two years period has elapsed to maximize your profits.
In the same way, other real estates investing approaches have their advantages and drawbacks, so does a live-in house flip.
Pros of live-in house flips
#1: Minimum finance and carrying costs
One home means one mortgage. It is a common practice among real estate investors to have a home where they live separately from the houses they flip. This implies you will have different mortgages and incur separate carrying costs for each of them.
However, when the house you are planning to flip is also your residence, you will only be servicing one mortgage and your carrying costs will be for just one house.
You’ll also get a better interest rate since it’s your personal residence you’ll be living in. Loans for investment properties like rental property, have higher interest rates typically.
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#2: Tax-free benefit
Section 121 provides that, if you have lived in your home for at least two years out of five years prior to the date of sale, you will be exempted from capital gains tax after selling it.
For a married couple, the exemption is up to $500,000 capital gains and up to $250,000 capital gains for an individual. The amount you would have paid as the tax remains to be your profit. These savings help you acquire more real estate quicker.
#3: No rush to resell
The standard procedure of house flipping is that you get a desirably priced house, make it beautiful, market it and resell very fast. Time is of the essence in this case, because the more you hold the house the more costs you incur which will eat into your profits.
But for a live-in house flip, it is a different scenario. You have all the time you need before deciding to resell. You can wait and take advantage of discounts when purchasing materials or even hire a contractor during their low season to cut on costs.
#4: A chance to renovate yourself
Since you are not in hurry to resell your live in flip, you can do some of the work yourself to save costs and maximize profits. Apart from cutting on your costs, you get to learn new skills.
It is also a time to get creative and make the house attractive. However, you should seek guidance from your local authorities on the work you can do yourself and one that requires you to hire a professional or pulling permits.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
Cons of live-in house flips
#1:Longer waiting time
For a typical house flip one can sell the renovated house within a short period. It can be between two months to one year. But for a live-in house flip, you must wait for at least two years for you to enjoy a tax exemption on capital gains.
Real estate markets are unpredictable, it is always recommended to sell your home when the market is hot. The waiting period can make such an opportunity slip away.
#2: Living in a construction zone
Staying in a home undergoing renovation can be stressful. You don’t get a chance to have your personal space.
There are times you will have to live with basic facilities that are not functional. For major plumbing activities and pest extermination, you might have to go somewhere to stay temporarily until the toilet & shower works again or the pests have been removed from the property.
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#3: Damage to the renovated home
There is a big risk that the renovations you have done might be destroyed before selling your house. The risk is higher if you have children and pets that can scratch the walls, make them dirty or even break cabinet doors. You might end up refurbishing more than once.
#4: Self-appealing design
The reason for renovation is to make the home attractive to many buyers. Now that you are likely to do some of the work yourself and make the home comfortable for your own use, the end result will be full of your taste. Your style might not be attractive to potential buyers.
#5: The need to analyze numbers
As much as it is your home it is crucial to have an investor’s mind. You must be able to approximate the renovation costs before buying a home. The home must also be able to sell when that time comes. If you don’t practice this, you will get very little profit.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
#6: You must move
When the time comes and you sell the property, you must move. This can be a hectic experience. You don’t just move once. It happens all the time when you flip your home.
So you’ll have to be comfortable with this lifestyle of packing up and moving multiple times, keeping minimal items in the house to make moving easier.
Bottom line
It can be challenging having to live in a dusty house during renovations. It is stressful and takes patience when looking for homes you can buy below the market value. But this is the price you must pay to eventually make huge returns in real estate investing.
If you are ready to get out of your comfort zone and achieve financial growth and freedom, live in house flips is a good opportunity for you.
Thanks for reading. Check out these resources below.
Best regards,
Nick Foy, founder | Under30wealth.com
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