Feedback on live in flip in the Bay Area?

Question

I'm interested in buying Bay Area property off market to rehab but then live in it for a couple years to capture tax advantage with the gain when I sell, then repeat. I'm looking at Peninsula Area such as San Mateo, Redwood Shores, Foster City. Assuming I bring the fund to acquire and refi in 6 months.

Does this even make sense and what's your thoughts on that?

Arlen Chou · Answer

@Chatree C. a live in flip is the best entry strategy in a hot market for a young person, especially if you are single without kids.  I would layer on top of that strategy renting out extra rooms.  With this strategy you get all of the benefits of; loan pay down, tax benefits, appreciation, learning opportunity.  I personally did this in my 20's and into my 30's until I got married and had kids.

Terence W. · Answer

From a theoretical standpoint, I think the live-in flip idea makes complete sense. I assume the reason you selected this route would be learning and trying to do a lot of the work yourself.

It really boils down to how much you purchase the house for. Most of the "profit", I believe, is made when you initially purchase it. You can't really rely on market appreciation although it has been steady. There are a lot of holding costs associated with this and they can get high in the Bay Area (Peninsula). You would need a decent cash flow to be able to 1) pay for principal & interest, 2) money for rehab. I did a slow flip (1 year) and the holding costs were in the 50-60k range.  Then there are realtor commissions, taxes, etc. You might not have a lot of profit left over to fully take advantage of the tax benefits (again, dependent on purchase price).

Aside from the numbers, the living situation might be rough. You'll have dusts flying everywhere and debris left and right. You'll also have to make sure all plumbing, electrical, and furnace are functional before moving in.

Jonathan Pflueger · Answer

@Chatree C.

I think this is a great idea, but as @Terence W. said "it really boils down to how much you purchase the house for." As the saying goes, "you make your money when you buy."

As a first time investor or even a smaller investor its hard to find a level playing field in the Bay Area. There are so many buyers with cash, more experience, bigger networks and infrastructure, and the list goes on and on... The trick is finding an equalizer or something that allows you to compete with theses types of players. Live in flips will give you a competitive edge when making offers and analyzing deals and allows you a way to compete.

Best of luck!

Bjorn Ahlblad · Answer

I recently sold a rental property in San Mateo. SFR and zoned R2, we considered building out the property and ultimately decided it was more profitable to sell it. I think you have a very viable idea in a very difficult market-does not mean it can't be done. Best of luck!

Sam Shueh · Answer

The areas mentioned almost all homes come with asbestos, popcorn ceiling lubricants and led based paint. I think the carrying interest cost with a hard money mortgage will eat up your potential gain.

Go to sleep with gas mask on? The pocket listings exist  in theory. All way over inflated.

Chatree C. · Answer

Thank you @Terence W. @Jonathan Pflueger from the feedback so far I felt what I have in mind might be more on the lifestyle purchase side rather than investment returns. That might be ok too but it'll cost me unless I buy right.

@Arlen Chou I got what you said about doing this while you can take that lifestyle. But I'm more in your stage now already have Bay Area property but want to move up so I figure could I try to acquire property in a good area from pocket listing or wholesalers and add value to the house. I totally underestimate the "flip" and in my mind it was more "remodel" which isn't realistic. Also thought of other ways to add value with less living impact such as extensions or ADU (for short term rentals). But all that said seems like I'm not doing it for investment.

Feedback on live in flip in the Bay Area?

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