Live in flip? Or buy an already remodeled house?

Question

I’m house hunting later today, and this market is crazy. It seems every house gets 10 offers and sells in a day.

So- I don’t want to overpay because I’ll be selling in 2 yeas (unless life changes).

Should I go for a cheaper house and do a live in flip? Or buy something already upgraded and save the hassle?

I live near Hartford, CT where everything is expensive for no rhyme or reason. It’s not like we have nice views, nice weather or nice taxes! In the best towns with the best schools, nice but not upgraded homes start in the 350 ballpark, and complete dumps list for 200k. In other nice but not the best towns, houses that are nice start in the mid 200’s and renovated in the 300 ballpark. Because of this, there isn’t much wiggle room even after I do renovations if I purchase an older dated house.

Questions- when looking at a live in flip- go for neighborhood? Or cheapest property? Or just stay the hell away and get something already upgraded?

Thanks!

Jared Hottle · Answer

I think it comes down to your skills and competitive advantages. For me doing the live in flip has been great. I bought a house that was in great shape it just had a smoker living in it for his entire life. I felt that was a problem I could tackle, tore out carpet, cleand, primed, reprimed, and painted house and it is livable and if I live in it for 2 years all my proceeds will be tax free!

Allan Smith · Answer

Hello Heidi,

Around Hartford we've seen big growth over the last year in selling prices (especially in some towns), but it's hard to have a crystal ball for how much values will grow organically in the next couple of years.

I think if you know you're only going to be there for 2 years, the only way you can depend on the value of the home going up is by adding that value yourself. Even in the best neighborhoods, if you buy a home now, and list it in two years for a lot more money, the buyers are all going to ask "what has improved since it was last sold to justify the increase?" You've got to have an answer. (Just looking at is as an agent). It may just be cosmetic improvements, but there's got to be something.

Cheap homes in cheap areas is no guarantee of large appreciation (even with drastic improvements), just like expensive homes in expensive areas have no guarantee that there is enough meat on the bone to appreciate further. Look for C homes in B areas, or B homes in A areas. Or in other words, look for a home with "baggage" that you are willing to take on, that someone else is not. :)

Dan Maciejewski · Answer

"Should I go for a cheaper house and do a live in flip? Or buy something already upgraded and save the hassle?"Unless you are planning a rehab that will add enough value to make a decent profit, you may not want to buy at all.  Usually the recommendation is to just rent if you know you're moving in 2 years.  And if you're in there for under 2 years, you'll have to pay capital gains taxes, too.

I know in my market, you should be able to buy a turnkey house now and walk away with enough appreciation in 2 years that you should be able to get a check, maybe even a big one.  Will that cover the debt service that you will have paid?  Maybe, depending on the house.   If not, then your debt service will be close to market rent.  Again, it will depend on the property, and market rents.

"When looking at a live in flip- go for neighborhood? Or cheapest property? Or just stay the hell away and get something already upgraded?"

When looking for a flip or rehab, the question is how much value can be added.

A better neighborhood always means more demand which translates to lower holding costs when put up for sale, and can mean a better price.

A cheap property doesn't really mean anything.  Is it cheap because it's a mess?  Because the owner doesn't know its worth?  Because the neighbors are nightmare?  Or is it cheap to you because you see how much value you can add to get a great ARV?  The last is what you're looking for.

For your last question, a live-in rehab is not for the faint-hearted!  @Mindy Jensen has done a few if I remember correctly from the podcasts and she probably has plenty of posts about washing dishes in the tub and sharing a bathroom with no door!

You should only really do it if you love it, or are willing to put up with a lot of discomfort for a good profit!

If you were my client (assuming I know a lot more), my advice would probably be to rent for the 2 years, or strategically buy a turnkey house that you are 99% sure is going to appreciate well if you are determined to buy.