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Posted about 9 years ago

A lot of Rookie Flippers Should Start with a Live-In Flip

My advice to anyone that wants to get into the "flipping" game is similar to how you would build a house. The most important way to start is to build a solid foundation. I believe that buying a live-in flip property could help develop that foundation, while creating equity and priceless experiences that will pay off throughout your career.

I enjoy listening to the Bigger pockets podcasts. Several of the episodes highlight relatively new flippers and investment property owners that started with creative financing and decided to jump into a number of properties in their first year. I truly respect their ambition and their success. However, I personally think that many potential flippers would be best served by first devoting some time to saving a chunk of money for the down payment on a live-in flip. The fact is that if you started tomorrow and devoted the next six months to working overtime, picking up some side jobs through indeed or craigslist, working an additional night job, or anything along those lines, before you know it your separate savings account will build into a sizable sum that will serve as a good part of your down payment. Which will also make you more attractive to lenders. While hustling and storing as much hard earned money as possible, you can still be researching the market and financing opportunities.

The next step is to put that money down and purchase a Live-In Flip. Obviously Live-In flips are not right for everyone. It is a lot to ask for from your wife and kids to put up with living in a construction zone. However, especially if you are a single first time flipper, I think the Live-in route has too many benefits to overlook.

The most important reason to start with a Live-In flip is that there is no better education than experience. When you are living in the flip property you are watching and learning every aspect of the process. You can't help but constantly watch all of the subcontractors because they are right in front of you. And at the same time you are developing the perspective of the future buyer. You will find out what works and what doesn't, what is important and what is not necessary. It is easier to miss a few steps when you are just looking at arm's length transactions. But when you are living within the process, you tend to observe and absorb a whole lot more. Thus building the blocks of your foundation.

Another reason to start with the Live-In Flip is to take advantage of all of the tax breaks. You are a rookie and you will inevitably make some mistakes and have some overages, however the tax breaks can often times make up for, if not exceed those amounts if you make a sizable profit. Tax laws are constantly changing, but when I flipped my Live-In property I was able to take advantage of the fact that you are not subject to a certain amount of capital gains tax if you live in the property for at least two years. Obviously consult your accountant, but that tax savings alone can help make the net profit worth it.

Even though it is obvious, it is nevertheless important to remind the rookie flipper that he or she is going to have to pay rent/mortgage, utilities, insurance, security, along with a number of other expenses in their primary residence. But if their primary residence is also the Live-in flip property they are killing two birds with one stone and freeing up a couple thousand dollars each month to contribute to the rehab.

In my experience, the first hand knowledge that I gained and the money that I was able to save was well worth the hassles and headaches of living in a construction zone.  It is not necessarily the right strategy for everyone, but it can build a solid foundation for a successful flipping career.


Comments (1)

  1. This is a great point! In fact, I share this concept with people frequently especially in regards to duplexes located in the nicer areas of town! And the lessons you learn will make you MILLIONS in the future on other deals..