Live in Flip vs. Regular Flip

15 Replies

Hi Everybody,

I'm currently in the greater Seattle area and extremely interested in a live in flip for my first property (most likely a SFR due to Seattle's extremely high prices). I'm curious on how some of you guys do/would anazlyze a live in flip vs. a regular flip. I've used the house flipping calculator here on bigger pockets, although I'm thinking the nubmers would change a little big given the fact that it would be my primary residence for a minimun of 2 years. Maybe I'm wrong, but considering I wouldn't be paying 2 mortgages, water bills, insurance ect. wouldn't it be safe to assume I could purchase a property with a slimmer profit margin? I do have a construction background so I would be doing almost all of the work myself.

You would evaluate your holding costs at the much cheaper FHA 203k interest rate or conventional loan interest rate, if you wanted you could inflate your return by assuming you would have paid $x in rent per month as well other than that it will be pretty similar.

In case you've never lived in a house your remodeling, just be aware, it's not awesome.  Your significant other is very likely to remind you of this on an increasingly frequent basis.  Mine was reminding me at least weekly after 6 months.

It's a good way to save some money, but it's also a way to really extend your 'start date' of getting rent, which might actually cost you in the long run.  i.e. you might save 50k by doing it yourself, but it might cost you 2500 or 4500/month in lost Short Term Rents, so you'll 'lose' a lot by not finishing fast.

Just some things to think about.

@Chris Baber Thank you for your insight, on a good note my girlfriend is all for the idea (even excited to get her hands dirty) we have discussed the issues we may face and as of right now it seems like something we may very possibly do. We would be living in the house for at least 2 years because my understanding is that is when you are free of capital gains taxes if you decide to sell. So this would be a some what slow process. The idea would be to get a 203k loan which has the same terms as a FHA, I've ran the numbers and financially it wouldn't be too taxing on us to be able to afford the mortgage up to around $325k

@Aaron K. Thank you that is helpful. So I could still use the bigger pockets House Flipping Calculator and just input the terms as we plan to hold the property for at least 2 years. Would it be safe to subtract the amount we would be saving in rent each month by living in the property? I.e if we would be saving say $1,500 a month in rent over the course of 2 years could use that extra $36,000 in our analysis?

Cool.  I'm glad she seems on board.  Mine did too at first, but reality set in after a few months of washing dishes in the laundry sink, and having plastic hanging in the shower, her enthusiasm waned.

I'm not suggesting you don't do it, just pointing out that the idea of it and the reality of it are not necessarily the same.  With all that said, mine was a total gut job, so if you're just updating stuff, and can get a project completed fairly quickly, the stress shouldn't be as much.  I highly suggest you start with and finish as quickly as possible the kitchen.  It should add the most value to the house (actual appraisal value), and will add the most value to your life in that house also.  Her having a nice new kitchen (if she cooks at all) will make everything much more tolerable; for you both.


Also, a 203k will require you to have bids from licensed contractors, and they will have to do the work and the rehab funds they escrow will be distributed to them as they prove completion of specific jobs.  I don't think you can be your own contractor on that loan, but I could be wrong.


One thing I would suggest is if you can buy the house with an 80/20 loan (or 80/15 if they require 5% down), but set up the 2nd mortgage as a HELOC. This will let you dump all your extra cash flow into the HELOC to pay it down, but let you re-access it to tackle another project when you're ready.

Finally, although it will probably cost you several thousand more to implement/use, perhaps a hard money type lender is a better way to purchase. They are a lot more flexible in their underwriting (almost nothing personal, but using the house values to base everything on), so you can probably get all the money you'll need from them, then will have a year or 18 months to pay them back. You would use their money to purchase, and do the repairs as quickly as you reasonbly can, then go to your bank and get permanent financing (or get your whole mortgage as a HELOC if you can find a bank/credit union to give it to you that way).

It'll cost you a few points to the hard money lender, and a 10-12% rate for the time you have it. That might cost you 10k in additional costs up front, but it would probalby let you get a much better permanent loan once all fixed up, and probably save you several times that over the life of your permanent loan. not to mention the flexibility of a HELOC vs a fully amortized loan if you can get that. I would definitely try to get the highest percentage of your financing as a HELOC that you can, just for the flexibility it offers. you can use it to borrow for your next property, and the next and the next and repairs and more.

Just some ideas to consider.

good luck to you either way!

@Chris Baber I appreciate your insight! I didn't think about having to get bids from a licensed contractor. To me that sort of defeats the entire purpose of a live in flip, but I will have to look into that. I've definitely considered some type of hard money, although my thinking was to use a FHA or conventional for that matter to leave myself with 2 exit strategies after the rehab. Either selling or refinancing then renting depending on the numbers/market at that time.

Yes you can, most people don't because it isn't the property making that return, it would be the same if you lived under a bridge and didn't pay rent so it is really just extra savings, but if you can be comfortable in the property you can count it that way.

Maybe also consider Short Term Rental as an exit strategy (Airbnb).  My home here would maybe rent for 1400, and 1200 is very possible.  It's a remote location, 1/2 hour from 'downtown', with terrible internet and cell service.

But, it's got waterfall views and an acre of forest, so it's a great vacation rental.  I'm currently seeing about $3500/month, and think I can get $4500 in the peak 2-3 months.  Probably 2500 in low season.  So 2-3 times as much as a long term tenant (I have to pay utilities and cleaning and such), and it's a lot more work to self-manage, but with a good property manager, you should see at least a 50% increase over Long Term Rental, and you've got someone inside the house at least weekly to make sure it's in good shape, catch little things before they get bad, etc.  Not to mention probalby an extra $500/month or more in cash FLOW, which is my driving force.  Values are great, but cash flow lets me invest and live a better life NOW, not after I sell for a (hopeful) gain.

Ovbiously not for everyone, but I'm happy with how it's going for me so far.

I'm currently trying to find a good hard money lender/private investor to help me accelerate my next house rehab to get it rented asap.  My peak season starts in about 2 more months.  I had been doing the work myself, but the money I'm 'saving' is going to get lost in missed rental if I don't hire help to finish.  It's all a big, constantly moving puzzle; this real estate thing.

@Tyler Smith two of my kids have used 203K mortgages and hubby and I did just "regular" live-in flips for our own early properties. First of all you need to talk to your lender - there are several varieties of 203K. Some don't require a contractor at all - just bids from say Lowes for carpet install and a roofing company bid - that sort of thing. More complex flips will require a GC on board and your lender will have a list of those willing to comply by the rules. However, most of those GCs will allow you to perform some work that isn't too technical - such as painting. All of this really depends on the house you choose - so get with your lender first, get an introduction to a GC to find out where they are on do it yourself stuff - then choose a property. The other thing with 203K is that they want the work done in 6 months @Chris Baber . So you might live in construction hell for 6 months but then you get 18 months to enjoy the profits of your labor. As far as the money goes: you gotta live somewhere and you probably gotta pay to live somewhere. So - if you can tough out this first one for two years and can force some additional equity over and above the price plus construction then you are ahead. You've got experience, a little tax free cash in your pocket (or on your balance sheet), maybe some good connections with subs, and then you are ready to roll again. 

@Teri S. I defintely expected some limitations with a 203k loan but I'm glad to hear it is actually possible. In your experience, would a smaller local credit union or bank be more likely to loan to a first time homebuyer seeking this type of property? Also when you say more complex flips are you referring to the actual cost of the flip? Like I may have more luck with a property needing $20k in repairs as opposed to a property needing say $50k or more. Thank you!

@Tyler Smith just work with a lender you like - definitely "local" office if you can. If you have a GC you like you can ask to get them approved for 203K - I've done that and the form wasn't bad. What I mean by "complex" is - building additions, adding bathrooms, constructing a garage, fixing a foundation, that sort of thing. If you are just tearing out kitchen cabinets and putting in new, new floors, paint, window installation, roof, gutters, etc. then those are not "complex". As far a qualifying for the loan: you have to qualify for the payments and the post work appraisal has to match the amount of money in total being borrowed. Really doesn't have anything to do with whether you have owned a home before. 

@Teri S. My goal is to find a property that doesn't need such complex repairs. Something that would fit my skill set and budget so I wouldn't have to borrow the down payment. Of course down the road if this is something that works out and I enjoy it I would be all for looking into more complex flip, but as I get started I would hate to bite off more than I can chew. Thank you for your help!!

@Tyler Smith , I've lived in every one of my flips. I really like putting the  $100,000 p rofit in MY pockets instead o f  Uncle Sam's. I do  not want to  pay for my own mortgage and another on top of that. Yes,  it can  get difficult at times to  be living  in the middle  of a mess.  Drywall  day is the worst! Don't ever believe a  drywaller when  they  say they will  do  it with  no  dust.