Living in a flip house is a great strategy for beginner investors and offers many benefits. One big challenge that new real estate investors encounter is capital. This strategy allows the investor to avoid capital gains taxes if they use the property as a primary residence for more than two years. It is also beneficial if the investor can only afford one property at a time. While there are benefits to this strategy, there is the whole, “living in a renovation zone”, that you have to be comfortable with.
When we got started in real estate investing, we used this strategy with our first three homes. I am sharing 5 tips for beginner investors who want to purchase their first live-in flip.
Live-In Flip Strategy | Five Tips
Choose an Appreciating Area
This is the best way to ensure your success with a live-in flip house. When we were living in Denver, the real estate market was INSANE. We were really lucky to be living in a city experiencing a huge boom. Over the last 10 years, homes in Denver were appreciating by over 7% each year. When you couple appreciation with improvements to the home, your chances of successfully making a profit on your home are very high.
Find the Worst Home in the Best Neighborhood
With most house flips, investors will look for the worst home in the best neighborhood. The same is true for the live-in flip strategy, except you live in the worst house while renovating it. It is definitely a little more challenging! Chris and I had a knack for finding undervalued homes in the best neighborhoods of Denver. Our first home was in the popular neighborhood of the Highlands with great walkability and access to downtown. We poured sweat equity into that home sold it for $90K more than what we purchased it for two years prior. We probably spent $30K on improvements in the house giving us a great return after selling the property.
Know the Comps & Top of the Market
Understand what other homes are selling for in the area. These comparables should include properties that are similar in style and size to yours and include the upgrades you plan to put in the home. It is also important to look at the finishes of other homes in the area to avoid spending too much on upgrades in your own property. If every other home in the neighborhood has modest kitchens with laminate countertops, you may want to think twice before installing the most expensive quartz countertop on the market. Don’t outprice your home in that particular neighborhood.
Design for the Masses, Not For You
Your personal home is a place to express yourself and create a unique space just for you. This can be one of the biggest challenges when living in a flip house. Every choice you make should be through the eyes of a buyer and maximizing profit. Try to remember your initial reaction to the home the first time you drove up to the property. Think about what you disliked and what distracted you from other wonderful features in the home. Your goal is to highlight the best features and fix/minimize everything you disliked during that first visit.
When choosing paint, opt for the more neutral tone, even if purple walls really make you happy. Neutral kitchens with stainless steel appliances are universally accepted. I would encourage you to add your personal style with your decor and artwork and avoid adding it in places that are harder to change.
Consider Livability & Renovations
While this strategy may seem to have less risk involved, living in a construction zone is not for everyone. Be honest with yourself about how you could handle living through noise, dust and torn up spaces. It is also important to think about your season of life and how that may affect others in your family. In the beginning, Chris and I found homes that required more cosmetic updates and adding living space to the exterior.
When we started to include larger renovation projects living in our third flip house, we made sure to plan ahead and often moved out for the messiest parts. Sometimes the timing would work out and I would end up delivering a baby while our kitchen cabinets were torn out, giving Chris a few days to put it all back together before we arrived home. Those were the days!!