I’ve been flipping houses since 1998. My investment model is the “live-in flip,” where I live in the home as I remodel it. This strategy definitely has its ups and downs, but it’s an excellent way to dip your toes into the rehab market to see if you like it, rather than diving headfirst into the deep end only to discover it’s not for you. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Let’s look at the pros and cons of live-in flipping. Baby Steps I bought my first investment property because I was sick of paying rent. I found a two-bedroom condo that I could afford—my mortgage payment was $7 more than my monthly rent payment. My brother lived in the second bedroom and went to school nearby. The condo had good cabinets, ugly flooring, and a broken dishwasher when I bought it “as-is.” I kept the cabinets, replaced the linoleum floor with ceramic tile, fixed the one broken piece in the dishwasher, and painted the whole place. I bought this jewel for $49,900 and sold it four years later for $76,250. And since I lived there, I was able to leverage the purchase with a lower rate, owner-occupied mortgage. The property was habitable when I bought it, and there were relatively few repairs. I didn’t spend the whole time I lived there working on the house, and if I would have decided that it wasn’t for me, I wasn’t going to be stuck with a half-finished rehab project. My first project—and the profits I pocketed tax-free—showed me this was indeed my thing. Take It Slow Because I purposely chose a project that wasn’t enormous, I didn’t have to work non-stop to complete it. The property was habitable from day one, so I completed repairs as I had money and time. As I progressed to other homes with larger-scale rehabs, I was still living in them and still taking my time. For tax reasons, I couldn’t sell the property for two years. Taking my time with the rehab took off a lot of the pressure. It’s been a while since that first investment property, and my life has changed considerably. I have a full-time job and two kids, and I don’t want to try to juggle all that with another full-time job running a remodeling business in order to scale up. (I won the employment lottery when I got the job here at BiggerPockets, and I have zero interest in leaving.) Related: Flipping Houses: The Ultimate Step by Step Guide Living in the home that I’m working on allows me to continue to invest without the time-sucking commute. I don’t have to drive over to my flip; I’m already there. I Pay ZERO Taxes In 1997, Congress passed the Taxpayer Relief Act, effectively relieving me of paying any capital gains taxes—as long as I follow a few rules. I have to live there. It must be my primary residence in order for me to realize any tax breaks. I have to own the home and live in it for two of the last five years. It’s a government program—of COURSE there are more rules than just these two, but they are the main points. If I follow these rules, I can write off up to $500,000 in capital gains. (I can do this because I’m married. If I were single, I could write off up to $250,000 in capital gains.) And that’s G-A-I-N-S, not just the difference between purchase and sale price. Keep meticulous track of your expenses while you rehab the house to maximize your profits. Yes, it’s difficult to hit that $500K profit on a rehab—you REALLY have to find a smoking hot deal. I found one in 2012 that would have probably netted me way more than $500K in profits, but it was an all-cash deal, I hadn’t yet discovered BiggerPockets, and all my cash was tied up in my home. Talk about the one that got away… Reduce Risk My live-in flip model reduces my investment risk a couple of different ways. First off, I have to live somewhere, so I’m only paying one mortgage or one set of holding costs—costs I would already be paying even if I weren’t working on the home. Second, I am under no time crunch. The holding costs are part of my living expenses, and the tax write-offs dictate I live in the home for at least two years. If the home doesn’t sell immediately—or takes me longer to finish the rehab—that’s OK because I still need a home to live in. But It’s Not ALL Rosy… There ARE negatives to the live-in flip. It’s not scaleable. If you’re doing it for the tax benefits, you can only sell a property once every two years. And if you’re not doing it for the tax benefits, it makes the whole process a lot less appealing. It can be a HUGE drag on your psyche. The construction zone is a mess, and it can be extremely depressing to come home to every single night, then wake up in again the next morning. Keys to Keeping Your Sanity While Living Through the Flip So, how DO you live through all that mess and still be mentally competent? Prepare in advance. While you can’t predict everything, there are some things you can do to make your experience smoother sailing. Organize yourself. This is a vital point to hammer home. If you do not have an organized place to work, you will descend into chaos, which will drive you straight to the mental hospital. Know where your tools are. Know what the next few steps are on any project, and have backup projects to work on when you hit a snag or finish faster than you expect. (Pro tip: You will never finish faster than you expect.) Related: 4 HGTV-Level Upgrades to Make Your Flip Stand Out Knowing where your tools are is a HUGE time saver. I have multiple copies of numerous tools because at some point, I couldn’t find it when I needed it, and I needed it right then and there. Somehow, I always live close to a big box home improvement store, and sometimes it’s just been easier to go buy another. Get yourself a tool belt, and wear it proudly. Be the pro you are. Knowing the order of things to be done can also be a huge time saver—if you run into a snag with one project, your entire workday isn’t wasted. Just move on to the next phase or project until you can resume the original task. Prepare for demolition and drywall mess. OK, this is kind of a misnomer, because there is no way to prepare for the level of mess that demolition and drywall creates. Think of a toddler with an open bottle of baby powder. Times a million. You can tape and tarp as much as you want, but drywall dust will get everywhere. When you tear down the old, the dust gets into every crack and crevice you didn’t even know you had. When you put the new drywall up, the mess finds all new cracks and crevices you didn’t know you had. In fact, drywall is one of the jobs I recommend hiring out. They do it better and faster than you, for slightly more than it would cost you in materials alone. Honestly, it would be a bargain at 12 times the price. The only way to possibly prepare for these steps of the process is to get as much of your stuff out of the house as possible. Put it in storage or put it in the garage. Even putting it in some other part of the house with doors closed and a towel in front of the space at the bottom of the door will help, although don’t be fooled into thinking that will eliminate the mess—because it won’t. Clean as you go. It goes without saying that your home isn’t going to be in pristine condition at all times. Construction is messy. But it doesn’t take much time to tidy up at the end of your workday, and you should plan a little time to make sure you aren’t tracking dust into other parts of the house. Put your tools back where they belong, so you can find them when you need them. We always set up tool shelves in a central part of the house, so we could find them easily—in theory. But every once in a while we wouldn’t put it back in the right spot, couldn’t find it, and had to run to purchase a new one. I have 12 utility knives. And those are just the ones that I can find right now. Sigh. Plan downtime. Living in the flip is draining, so we planned breaks. Some were full-blown vacations, while others were just a weekend away or even simply a night off. Taking a mental health break is vital to avoiding a meltdown. Keep your focus. The whole reason for living in a home during a flip is to save money. Whether on rent or avoiding capital gains taxes when you sell, living in a flip can save you significant cash. It can also test your reserve. Keeping your focus on the end result can help you keep your sanity. Have you lived in a home you’ve flipped? What are your tips for a successful live-in flip? Let me know your thoughts with a comment!