Live-in Flip: Using private/hard money for renovations?

Question

Hello all, long time lurker but first time poster!

Looking into getting into my first RE deal, I originally planned to house-hack a duplex but have been looking at the possibility of doing a live-in flip - since distressed SFH are more available than well-priced multi-units. The plan would be to live in the house while doing renovations, living there for a year and then renting out the house - or possibly selling.

My question is, has anyone done this with using private/hard money for the purchase price + renovations then refinancing out of that into a traditional mortgage? Since the property will likely not qualify for traditional financing and I do not have funds readily available for a medium-effort renovation, I figure I can use the traditional BRRR style method most flippers use.

Is there any difference doing this while living in the property? When it comes to refinancing with a traditional mortgage, since I would live there for a year - is it preferable to refinance with just 3.5-5% down or would I want to take out the mortgage with 80% LTV? Does it make sense to just put 5% down and take money out of the deal, or does what I leave into it depend on the numbers to make the rental cash flow.

Appreciate you thoughts and insights!

Caleb Brown · Answer

If you are doing a live in flip the benefit is utilizing the low DP to get in the door. Hard money or private is for non occupied investors so would not work. I would suggest finding a cosmetic rehab that'd pass conventional. I did that, used 5% down. I have 100K in equity after redoing the inside(flooring, paint, bathrooms, etc). I would not refi unless the numbers made sense. I think selling and doing it a few times would be better. It'd give you the capital to invest and do BRRRs. You might not have a crazy margin compared to doing a full flip but it gets you started. If you do 2-3 live in flips you'd be in a great place

Chris Seveney · Answer

If the property is owner occupied you will not find a traditional HML or private lending company lend on it. Maybe an individual private lender but too much risk.

Dwayne Ramsey · Answer

Hi Deaven Reed,

It sounds like you’re considering a strategy often referred to as a “live-in flip” where you live in the property while renovating it, and then either rent it out or sell it. This approach can be a viable way to get into real estate investing, especially when starting with limited funds.

Using private or hard money for the purchase and renovations, then refinancing into a traditional mortgage (often referred to as the BRRRR method - Buy, Rehab, Rent, Refinance, Repeat) is a common strategy used by many real estate investors.

When living in the property during the renovation process, one of the main advantages is that you can use owner-occupied financing. This means you can get a traditional mortgage with a down payment as low as 3% or even 0% if you qualify for specialty loans. In contrast, investment property loans typically require at least a 20% down payment.

As for your question about refinancing with just 3.5-5% down or taking out the mortgage with 80% LTV, it really depends on your financial situation and goals. If you plan to rent out the property after living there for a year, it might make sense to refinance with a lower down payment and take money out of the deal. This could provide you with cash to invest in your next property. However, if your goal is to maximize cash flow from rental income, leaving more equity in the property (i.e., refinancing at 80% LTV) could result in lower mortgage payments and therefore higher net rental income.

Please note that while this information can provide a general understanding of this strategy, every real estate deal is unique and it’s important to carefully analyze the numbers and consider all factors such as renovation costs, potential rental income, financing costs, and your personal financial situation. It’s also recommended to consult with a real estate professional or financial advisor before making any decisions.

I hope this information helps! Let me know if you have any other questions.

Jonathan Perez · Answer

***Also, maybe you can use the hard money to acquire and rehab (non owner occupied) to your liking and then as soon as you finish, you can refinance with conventional, in which at that point you can move in and hack it however, ( rent / sell later )

This is what I thought you were saying at first. But that may be something you can do too.

Jonathan Perez · Answer

Hey Deaven, as others have stated, with hard money you cannot occupy the residence so it pretty much takes away the whole “live in” part of the flip.

Why not purchase a property that requires a lighter rehab that could pass conventional / FHA inspections and live in flip it as you go?

You can do this with a duplex. Rehab one side as you live in it (while the other is rented), then once finished, you move to the other side and rent the rehabbed side out for a premium and repeat for the other side.

This is what I did for my first one and it was definitely a great way to get started.

I highly recommend it for starting out.

Feel free to reach out if you have any questions!

John Chong · Answer

Great question, just like other have said you won't be able to get funding for a hard money loan if you're planning to live there. These are non owner occupied loans.

A DSCR loan would be roughly 20% down, depending on FICO and cash flows.

Live-in Flip: Using private/hard money for renovations?

Live-in Flip: Using private/hard money for renovations?

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