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A Quick Overview of Live-in Flips

By: Kyle Spearin


Have you ever watched one of those home makeover shows on HGTV? What about the flipping shows where they do a complete rehab?


Even if you love this concept, it might seem too scary or risky to try on your own. Most of them require investor money or some sort of home equity. Rest assured, performing a home rehab is still within your grasp. 


Have you ever heard of a live-in flip?


As the name implies it’s a form of real estate investing where you live in the house as you renovate it. This can occur over a long period of time (if you plan on staying a while) or quickly. It can be a complete gut job, or a cosmetic project here and there. It’s totally up to you.


Trust the Process

The best part is that anyone can do it.With such abundant funding available without hard money lending or more investor savvy techniques, it opens the door to anyone who wants to buy a house but might not be able to afford their dream home. By qualifying for a home loan, you have the opportunity to start doing live-in flips. For more cosmetic flips, a conventional loan will probably work, for more intense rehabs, you can try the 203k loan which will fund the actual rehab as well. 


Live-in flips are a great way to get your feet wet with investing. You’re inherently minimizing your risk because you can always hold the house and live in it long term since it will be your primary residence during the process. When you purchase a property below market value due to structural or cosmetic changes, you also have a degree of built in equity because repairing the house will increase resale value.


During this process you get to be your own boss. It’s up to you to hire contractors (or do it yourself) and oversee the transformation. This can be stressful, but it can also be quite rewarding.


Sell Your House…or Not

Now that you’ve completed the renovation process, you have a big decision to make. Should you sell your house or not?


Regardless of your decision, this is a great dilemma to have. On one hand, you have the opportunity to cash in on your hard work and investment. If you decide to stay in your newly remodeled house, you get to reap the fruits of your labor as well.


Selling Your House

Deciding to sell comes down to your financial goals. When you complete the rehab, you’ll first want to get an appraisal. This will help you determine how much equity you’ve built in the property. You should also ask a real estate agent to perform a Comparative Market Analysis (CMA) to figure out what your home would sell for. If it’s close to the After Repair Value you envisioned, you may want to consider selling.


After running some numbers, let’s imagine that you decide to sell. There are factors that you need to consider. 


Assuming that you took a conventional loan or FHA loan, any loan from a lending institution really, you must follow certain guidelines. Under most loan agreements, you will be required to stay in your home for one year after closing. Although there are exceptions, you need to be cognizant of this when you sell a home that you made your primary residence. 


There are also tax considerations to consider. When you sell your home without living there for 2 of 5 years, you will most likely pay a capital gain on your property. Check with your CPA to ensure that you understand the tax ramifications of selling your home.


Given these factors, there are many benefits to selling your live-in flip. It enables you to cash out, which in itself opens many doors for your next steps. You could choose to reinvest in another like property, take the money and run, or seek other options. The point is clear, a live-in flip gives you plenty of financial flexibility.


Keeping Your Home

The beauty of a live-in flip is that it’s a win-win all around. At the end of the project, you have something to show for it that can benefit you financially and allow you to enjoy a newly renovated home. 


Although the name live-in flip implies that you are going to turn the house for profit, it doesn’t have to be right away. Some people need to put time in between rehab projects because they want to appreciate the hard work they did. Maybe they just don’t feel like moving again. Whatever the case may be, you now have a new looking home where you can host friends and family if you do decide to stay put for a while.


Along with being proud of your finished product, there are financial gains for those who decide to hold the home for a period of time. A major consideration selling the home would be taxes. Occupying the house for 2 of 5 years (it can be nonconsecutive) rather than flipping right away may qualify you for a capital gains exemption. This opens up the option of holding for two years or more. You could rent out your house while starting this process again somewhere else, or just enjoy the extra money in your pocket from waiting until your second year to sell.  With all things tax, it’s important to walk through this with a CPA because laws and code are always changing.


Home ownership has abounding benefits. Perhaps the most relevant for a live-in flip is the concept of building equity. By purchasing a house below market value, then rehabbing it you’ve built sweat equity which boosts the price of the house significantly. As you continue to live in your home, you are also paying down the mortgage principal, again adding to your equity and net-worth. 


Holding a live-in flip can also be financially beneficial.


Final Thoughts

A live-in flip is a great way to get exposure to real estate investing with limited risk. By learning more about this process, you can decide if this is right for you.


Brian Burds

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