Live in your first flip, yea or nay?

20 Replies

Interested to hear what some experienced flippers would say about living in your first flip.  Yes?  No? 

I'm looking at a potential REO property as my first flip, however the bank has a requirement that the new owners live in the property for a min. of one year after purchase. There is a ton of upside on the property but wondered if I would be better served trying to do a couple flips in the year to hopefully net the same profit.

That is in the back of my mind right now. For one main reason, if prices flatten or start to decline at least I have a place to live that i am happy with. I might have to ride out the bottom cycle.

Our first flip was a 'slow flip' and we purchased a foreclosure that we were okay with living in.  Upfront there were some things we had to get done to make it livable for a family but we just lots of weekend projects - sold it after a year and made $48 K.  It really just depends on your living situation too.  For us, it made sense at the time.

@Arissa, that's exactly the position I'm in.  We would be "OK" living there for a year, but not where we would want to be long term.  And it definitely will need some work to be livable.  What did you do when you left that property?  Did you buy another property for yourself or rent and continue flipping?  Or do another live in flip?

@David - are you flipping in SF? 

If you  are ok with living in a fixer upper, it could be a fantastic investment. It sounds like the bank is quoting you an owner occupied loan, so you only have to pay 3-5% down, provided you live in it for a year. That's how I got started as well, and it was great! It's a strategy that doesn't work for everyone's family situation, but if you can swing it, it can be an excellent way to get started, and for new investors to get their foot in the door!

Our first flip was a live in.  It was myself, my wife, and our 1 year old at that time.  I would advise against it if you can afford to flip with out living in it.  That being said sometimes as it was in our case it was our only option if we wanted to flip, financially we had to live in it.

In my experience everything just becomes harder when you live in it.  You have to clean up really good every time you do something.  You would be surprised to the effect living in a construction zone can have on your mood.  My wife also got very tired of doing dishes in the bathtub.

Would advise against it, that being said sometimes you have to do what you have to do.

Originally posted by @Melissa Ewbank :

@Arissa, that's exactly the position I'm in.  We would be "OK" living there for a year, but not where we would want to be long term.  And it definitely will need some work to be livable.  What did you do when you left that property?  Did you buy another property for yourself or rent and continue flipping?  Or do another live in flip?

@David - are you flipping in SF? 

 I did a long term ground up build and recent sold it. I am actively looking in SF for a 1 year fix and live in flip, but its very very challenging. Everything is priced and or sold at max value, even the properties that need rehab. So for example a fully repaired property might sell for $1,250,000, but needs $250K of work, that final closing price will be slightly over $1MIL. there is nothing left on the low end. The only places I am seeing the numbers work are on the high end. Getting into a 2MIL property that needs 1MIL of work that can sell for 4-5MIL. On the mid-high end there is a lot of money to be made. but the entry hurdles are very high, you need to have cash and LOTS of it to play in that world. it can be done, but its tough.

@David - thanks for the info. My husband and I were living in the city but recently made the move east to Oakland, but it's a similar situation over here (albeit cheaper)...finding a property is a challenge, making this one in particular a little more enticing.

@Sam - my situation sounds pretty close to yours, my husband, our 8 month old and I would be living in it. Although I'm thinking of trying to do the Reno before we move in (or at the very least the major stuff).

Hi Melissa,

That's how I did my first "flip"…although it didn't originally start out as a flip. I got an FHA loan and was required to live there for a year, planned on living there for several years, but things changed and I sold my house six months later. I was able to do so because I had a job change, but that's beside the point. If you don't mind people working on your house all day or sleeping in different rooms while they work on your room then I say do it. I had some people there at 6am to work and others who stayed until 11pm working. I had to move rooms twice and rarely had the house to myself during rehabbing. Once it was done I didn't want to sell it, I fell in love with the house and my emotions got involved. I debated selling after it was all done, but I had to because I had a loan for the rehab that I had to pay back. I still regret selling that house, but long story short if you can handle the emotional rollercoaster then yes do it! I made a lot of money on the house, but probably won't do it again especially since I am married now.

If your reason is purely money driven (highest return on your money), then I would do an opportunity cost comparison of both options. Example: if you think the REO property is worth 300k ARV and you can get for 200k vs that same 200k doing 3 – 4 deals could you make more than 100k? the other consideration in the calculation is taxes. Since it will be your primary residence you can make up to 250k profit (500k if married) and not have to pay capital gain tax (or at least I didn't – I am not an accountant or attorney though so you might want to double check). So if you made 100k flipping 4 houses it might still not be worth it because of the taxes. So many variables to consider.


@John - thanks for your insight. YES, so many variables. The market here in the Bay Area is competitive and pricey, so one of my concerns is would I even be able to find 3-4 additional flips. The more I'm writing about this the more I'm finding the answer is to do the live in deal. I'm looking at a purchase price around $400K, reno costs of $50K, and an ARV of $550-$600K (probably closer to $600K if we are there for a year)....with the added benefit of no capital gains.

@Melissa Ewbank great thread!

If I could start over, I would definitely "house hack".  It sounds like you can afford to live in another place for a couple of months while you do the majority of the flip.  That is the best of both worlds if you can swing it.  You don't have to live in a major construction zone (sleeping in a hard hat is not easy), but still get the benefits down the road. 

The difference between short term and long term capital gains tax on the exit can be fairly substantial, depending on your situation.  If you stay there 2 years, you may be able to avoid a tax consequence on the gains completely.  If you can rinse and repeat every two or more years, you can possibly accelerate the timeline of reaching your goals via saved taxes.  

Good luck and let us know how what you decide and how it goes.   

If you haven't been yet, there are a few good local meetups hosted by BP members.  J. M. hosts a South Bay meetup. 

Hi Melissa,

That is how we did our first flip, and the experience was as others have described - noise and dust all day, inconvenience, etc. Try to find contractors who will do the work quickly to minimize the disruption. Eventually you'll look back and say it wasn't so bad.

Regarding avoiding capital gains taxes, my understanding is it needs to be your primary residence for two out of the past five years. Check with a CPA.


thanks @Peter K. I missed the SF meetup that was this week, but will definitely try to make the next one. Im eager to meet some locals in the biz.

@Melissa Ewbank ,

IMHO - you are talking about a short-term hold possibly (or 2 years if you're trying to get the owner-occ IRS exemption) - not a flip necessarily. Not trying to parse words. But flipping is a specific business - and the most successful professional flippers over cycles don't hold inventory to "speculate" on further upward appreciation. They buy, get in, fix, get on market, and on to the next one. If you're talking about buying a property at a slight discount, rehabbing it slowly over time, and selling it in the future with market appreciation - you are doing exactly that - adding value over a time on a short-to-mid term buy and hold. Thanks for the shout out @Peter K.

I bought a vacant REO 4plex w/ an FHA loan w/ a 1yr requirement for my first purchase - but never sold it. We moved in before it was painted because I already gave notice I was moving out of my rental. It was a PITA having to move everything around to finish jobs - and this was the best of the 3. My handyman HATES doing big rehabs on occupied spaces. It takes much longer, more constant cleaning, more scheduling & other conflicts with occupants.

I would ask yourself a couple questions..

1) Do you want to physically be in the space, with your family and small child, as the noise, havoc, airborne particles, etc are in the property during rehab.

2) Do you want to live there at all? Or just flip and move on? Or stay the 2 years to get the IRS exemption? Or try to rent it out forever and hold onto it (one of my favorites if you can afford it.)

3) Are you comfortable holding it going into a hot part of the upper part of the cycle? Can you afford for the market to change - if that were to happen?

4) What does your partner think about it? How do you two feel about your baby being exposed to the particulates and/or frequent, loud noises?

Originally posted by @Arissa Pedroza :

Our first flip was a 'slow flip' and we purchased a foreclosure that we were okay with living in.  Upfront there were some things we had to get done to make it livable for a family but we just lots of weekend projects - sold it after a year and made $48 K.  It really just depends on your living situation too.  For us, it made sense at the time.

 you mean $48 k for one Dealership ? 

but the question how much you spend for the Dealership that you got $48 k ?

and please give me the way how can i get a good deal to buy a house 

for flipping because i am confused 

Thanks J. M., all the exact questions we are pondering. My true desire is to fix and flip, quite honestly we like where we live now and it would be a major PITA to move...but I see so much potential in the house. It's in a HOT neighborhood, so if we sold right after the year there's bound to a solid profit. Even better like you said hold and rent and watch the property appreciate over time. My fear with that is we would be sinking a large portion of our funds into one property rather than spreading it out between multiples. 

You have East Bay experience, right? If it was you, what would you do? Buy one property in Oakland (Maxwell Park), or buy 2-3 properties in say Richmond, San Leandro, San Pablo areas?? I'm very familiar with the Oakland market but still need to do my due diligence on the outer markets as I'm not as familiar with them...

@Abdulsalamj Hasan

Yes $48K on the was made on our slow flip -one deal. We did all of the major reno prior to actually moving in such as the furnace, flooring and skimcoating the walls. Once we were in, we did the rest. We did a 203b FHA loan so we put 3.5% down and then received $8,000 at closing to do the flooring. We got the bank to replace the furnace prior to closing. I can't remember exactly what we spent since it was a lot of sweat equity but we painted the interior, exterior, replaced counters, vanities, carpet, resurface hardwood floors, re sod the backyard, landscaped, new roof (got the insurance to pay for it) and custom closet. I am a real estate agent, so I know what is considered a good deal. If you are unsure, my advice would be to find a realtor that specializes in investment properties and make sure that the comps make sense. Good luck!

Hey @Melissa Ewbank , what a coincidence, I just moved into one of my flips that i fell in love with. However, personally speaking, if I was just starting out in the world of flipping, I would not move into your first flip, the reason being as follows

1. Unless your world currently fits into a suitcase, the cost of moving is very expensive. 

2. when it comes time to sell in 1 year, perhaps the market has moved up, you'll sell and make a profit, but the problem is that if you buy another residence but in a higher market, that profit essentially disappears so you're back at square one. 

3. If you do want to live in the house, i would look at living in it for 2 years instead to get exemption of capital gains up to 250 or 500K depending on if you are married.

4. If you want to get into flipping, finding deals based on needing to live in it isnt a sustainable model.

5. I don't know how much capital you have, but essentially by moving in this house, you've committed a certain amount of capital for at least 1 year. for a flipper, that is a fairly long time to tie up capital. of course this all depends on your business model as well.      

Personally, I would pass and move on to the next deal. Hope this helps. 

Thanks @CK Hwang !  Your 2nd point has been our biggest question, we like where we are at now and moving into this "flip" would then require us to find another place to live post fix.  So, as you said we would be stuck back at square one.

When my wife and I first started out investing, we lived in our flips.

It can be a great way to get a house with a low or no downpayment, also if it takes time to sell, it is not a big deal.

The big thing to remember with flips is they usually take longer to sell than you expect.  A lot of people leave out some of the carrying cost details when they say how much they make.

That being said, the bigger money is usually made if you can change the use of the property, either by re-zoning, sub-dividing or adding units.  It may not be possible to live in a property that is having extensive work.

When we did not have kids, it was pretty good, as long as you are ok with the following:

You will be living in a construction zone, that does not sound like a big deal, but I can remember my wife and I thinking after our third project, that we would love to buy a house that did not need any work.  It is just irritating living with dust, and debris, plus waking up with a contractor in your room.

You may have to leave on a moments notice when you list.  One project we had a full price offer, however, the condition was we had to be out in two weeks.  

When you have kids it is harder, one of the motivations to switch to buy and hold investing, is that moving with kids is tough.  Having a house for sale with kids, trying to make it look like a museum for showings is tough (not to sound like one of "those" parents).

In summary, if you are single, or a couple, I say live in your flips as long as you can stand it.

If you have kids, it will depend on what your full-time work schedule is like.

I hope this helps,

Michael P Currie

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here