Live-in flipping is a great way to make large amounts of money tax-free. You have to live somewhere, so why not live in a home that will help make you rich?
In this post, I’ll share:
- How I got started with home flipping
- My deals including my numbers
- My best tips for live-in flipping
Learning How To Get My Hands Dirty
I never planned to be a DIY home flipper. I just didn’t like the work. My dad was an electrician and as a child, he would try to teach me how to work with my hands. I was an insolent little sh*t:
I don’t like this work! I’m going to college!
The irony is that now that I’m 47 years old and have a healthy nest egg, I spend more time than ever doing manual labor. I spent a recent morning digging out a spot for a slab for an upcoming shed project:
I did end up going to college and earned degrees that I never used; biology and chemistry. Fortunately, I found computers and made a good career for myself. However, I built the core of my nest egg flipping homes. Today, I’ll share some stories, the juicy numbers, and my favorite tips.
How I Unintentionally Became A Live-In Flipper (And Discovered Tax-Free Capital Gains)
Live-in flip: Fixing up a home that you’re living in to sell for profit.
Out of college, I had almost no home improvement skills. I was a white-collar human with a nice computer job. Yay! I felt much more comfortable around a keyboard than a table saw. Then, a crappy tile job sent my life (and my net worth) on a new course.
Tile Setting For The Win
Before marriage, Mindy and I each had our own homes. Mine had a better location, so we decided to sell hers. However, there was one problem, the kitchen floor.
The previous owners had done a very poor job of installing linoleum tile. The floor was peeling up all over. We knew that we’d have to replace the floor before the home went on the market. My future father-in-law knew how to set ceramic tile and offered to help.
Over the course of a weekend, we yanked up the old linoleum and put down a beautiful ceramic tile floor. I was terrified when it came time to set the first tile. By the end of the weekend though, I was fairly confident in my new skill and felt on top of the DIY world.
A month later, I went to work on the bathrooms in my home. I replaced the dated, pink tile on the floor and in the showers. The job looked great, but much more importantly, I was gaining confidence and my mindset was changing.
This isn’t that hard!
I was a changed human. I wasn’t afraid to try anymore. When something broke, I tried to fix it. My toilet started leaking and I installed a new flapper valve. My bathtub faucet dripped, so I ordered a cartridge kit and repaired it. I replaced the hot water heater when it quit.
I knew that I could always just call a pro if my job went bad, but it never did.
Flip 2: $100,000 Profit (Tax Free)
Bookkeeping note: The “before” numbers in all of these deals reflect the purchase price of the home and the money we put into the rehab. They don’t reflect the transaction fees, but I address that below in the summary.
Our path of flipping houses was set when we decided to move. With our improvements and a healthy real estate market, we ended up selling the home for $100,000 in profit. Because of the 2 out of 5 year IRS rule, the $100,000 was completely ours.
It’s critical to understand and appreciate the value of tax-free profits. If you’ve lived in a home for 2 of the past 5 years and owned the home for 2 of the past 5 years, you’ll probably sell tax-free:
- Single filing status: You may exclude $250,000 in gains
- Married filing status: You may exclude $500,000 in gains
This is incredible! What other investment allows you to do this?
We were over the moon and decided we’d try it again. First, we set some basic requirements for our next flip:
- We would buy into the nicest neighborhood we could afford.
- We would buy the ugliest home in that nice neighborhood. We defined our ideal home as:
- Structurally sound with good mechanicals: I didn’t know how to replace a furnace or fix a foundation, so we’d inspect the home thoroughly to make sure the issues were compatible with our skills.
- Cosmetically ugly was beautiful to us: Pink toilets? Blue bathtubs? Dark brown cabinets that were falling apart? Yellow tile from the 1970s? Yes to all of the above. We already knew how to tile. Surely it wouldn’t be too hard to replace cabinets and tear out old fixtures.
I’ll talk more about strategy later.
Flip 2: $375,000 -> $405,000
This home was in a close suburb of Chicago. The neighborhood was great, but the home had an awful bathroom and an atrocious kitchen. We didn’t get rich off this one, but it didn’t need that much work either.
Flip 3: $300,000 -> $360,000
This home fit our requirements perfectly. One bathroom actually did have a pink toilet (the other bathroom had a blue one). We remodeled both bathrooms and the kitchen. We also remodeled the foyer with new railings and tile.
Flip 4: $700,000 -> $730,000
This was going to be the flip that set us financially free. It had a wonderful location on a lake in Wisconsin. I knew that we’d sell it for a million. Until we didn’t.
Queue the scary music.
We bought it in 2006. Over the next couple of years, the Great Recession would play out. Real estate was hit hard. Luxury real estate was hit even harder. We didn’t lose money because we did the work ourselves, but it didn’t put us over the top either. I would take this one back if I could.
Flip 5: $300,000 -> $590,000
We purchased this home in June of 2013 with the intention of turning it into a rental. However, we liked the street, so decided to stay a bit longer. I added a small, second-story addition and rehabbed the existing space.
Flip 6: $465,000 -> $700,000 (estimated numbers)
This is our current home. We’re still working on it, so the $700,000 number is an estimate of what I think we’ll be able to sell for in a couple of years when the home is in perfect condition.
This home is well on its way. I have already:
- Finished 90% of the basement. I just have to finish the bathroom.
- Remodeled the guest bathroom.
- Replaced the windows.
- Built a fancy deck and pergola.
- Installed flooring on 3 levels.
- Tiled the foyer.
You can view some of our flipping adventures here on YouTube: https://www.youtube.com/1500days
I still have to:
- Build a storage shed. This is my current project.
- Solar panels: September
- Remodel the kitchen: October
- Finish the basement bathroom: 2022, spring
- Install a new railing system: 2022, fall
- Remodel the master bathroom: 2022, fall
- Remodel the girls’ bathroom: 2023, spring
The Big Numbers
If you add up all of the transactions above, you come up with the following profit:
$745,000!
However, I didn’t include the transaction fees that we had to pay agents. I totaled these up and they came to:
$103,000
That hurts and there is a lesson here. Facilitating transactions can be very lucrative.
So, our actual profits are:
$642,000
We minimized transaction fees whenever possible by:
- Negotiating with agents: An MLS listing is all it takes to sell most homes which isn’t much work on the part of the listing agent. You must offer the buyer’s agent a market-rate commission, but we often worked with listing agents that would list for 1%.
- Using a flat-fee MLS service: These are services that put your home on the MLS for a small fee.
- Getting an agent license: More on this below.
Money means different things at different parts of your life. When we made $100,000 from the first flip, my day job was paying me $37,000/year. So after taxes, this flip earned us more than triple what I made at my job. That money invested in the S&P 500 would be $433,000 today! That’s a lot of money for doing a little tile work on the weekends.
My Best Flip Tips
Real estate may be the best builder of wealth, but it’s not easy like an index fund (set it and forget it!). If you want to make money in any kind of real estate, you’re going to have to put your time in. Here are my best tips.
Mindset
Embrace the live-in flip: It can be difficult living in a construction zone, but if you can stay in the home for 2 years, you pay nothing in capital gains. Clean laundry covered in drywall dust sucks. So do puncture wounds (Pro-tip: get a tetanus shot)! However, the sweet profits at the closing table make the chaos easy to forget.
Don’t be afraid of the work: Nail guns aren’t hard to operate. Neither are tile saws. You’ll be slow at first, but that’s OK. Take your time and do a great job. You have the best teacher in the world in YouTube.
Location Strategy
Finding a good candidate for a live-in flip is the most important part of the process. Mindy and I spent almost 2 years before we closed on our current project. It’s better to wait for a great deal than to rush into an OK one.
Find a great state to invest in: I live in Colorado and lots of people are moving here. The state is business-friendly and has a lot to offer. Even if I bought a home here and did nothing to it, I’d probably have above-average appreciation.
Find a great region to invest in: I like to buy into areas with thriving economies. My home of Boulder County has lots of great jobs in tech.
Find a great city to invest in: I don’t like a perfect town. A town that’s a little rough around the edges has more potential for price appreciation. Longmont fit the bill nicely here. It’s also surrounded by more expensive cities. A rising tide lifts all boats. Another consideration is the local building department. Some towns l( *cough cough* Boulder!) are difficult to deal with. Longmont has a friendly building department and the permitting process is easy.
Find a great neighborhood to invest in: I like to buy homes that are 30-50 years old and in their original state. They’ll be dated and cosmetically ugly, but have more modern systems.
Dumpsters are your friend: I love to walk a neighborhood and look for dumpsters. They are a sign that people are putting money into their homes.
Time To Zero In
Study the market like it’s the most important exam of your life: Sign up for listings and review every new home that comes on the market. If it looks even mildly interesting, go see the house (you can do this yourself if you have your license).
Your goal is to get so familiar with the market that you can decide in under 30 seconds whether a home is worthy of further investigation. Once you’ve identified a good flip candidate and your offer has been accepted, hire a decent home inspector who really looks under the hood at the mechanical systems and structure.
Look for off-market deals: Walk around the potential neighborhood and chat the neighbors up! Tell them who you are and let them know you’re in the market. Look at obituaries. This one is morbid, but if someone died, you could be saving the heirs a lot of hassle. Just be sensitive so you don’t come across as an opportunistic vulture!
Funding Your Flip
Make A Cash Offer: You want to get the best deal, so you should make your offer as attractive as possible. If you can, make a cash offer and tell the sellers you can close in 2 weeks. This will set you apart. We bought our current home partially with a line of credit from our previous home. It was technically borrowed money, but we didn’t have a mortgage contingency in our offer, so it looked like cash to the seller.
Margin Loan: Mr. Money Mustache wrote about this one recently and I love the strategy. Money is cheap and the process is simple:
- Borrow money against your post-tax portfolio.
- Pay cash for your flip.
- Refi and pay back your margin loan.
Random Tips
Get a real estate license: Agent transaction fees will eat into your profits when you go to sell. Mindy got her license through an online course that cost $700. Remember that you also get a commission on the buy side when purchasing your flip property.
Another bonus of being an agent is that you can help friends with their real estate deals. Mindy has helped many friends buy homes.
Join BiggerPockets: BiggerPockets is a real estate investing website full of friendly people waiting to answer your questions. There’s also a podcast and a blog, full of information about all aspects of real estate.
Don’t do this while your kids are young: Children need your time more than a home does. Children also aren’t very good at swinging a hammer. If at all possible, flip homes when young kids aren’t in the picture.
It’s OK to hire out too, but be careful: Contractors can be a pain to deal with. In a healthy housing market, finding a good contractor is an infuriating task. Most won’t even return your call.
YouTube is your friend: Any home improvement skill that you’ll ever want to learn is explained in detail on YouTube. You’ll be nervous laying your first tile or hanging your first cabinet, but just take your time and follow the instructions. You’ll do just fine.
Will Your Next Home Be A Flip?
Flipping is a great strategy to build wealth. Some of my flips worked out better than others, but I’m financially decades ahead because of my sweat equity.
If you’re OK with a little work on the weekends or you’re an early retiree, why not buy an ugly duckling and make it into a beautiful swan?
I love the live-in flip:
- Cheaper price: Most people will choose a perfect, turn-key property over one that needs some work. You’ll get a much better price on an ugly duck.
- Killer skills: Why pay a plumber $200 for a house call when you can fix the toilet in 30 minutes after spending $10 at Home Depot? The skills you acquire through the live-in flip will serve you well for as long as you live. Just watch out; once the neighbors know about your mad skills, they’ll be asking you for help on a regular basis.
- Great strategy when rentals don’t work: In high priced markets, you probably won’t be able to get a good return on purchasing rental property. A flip can work in any market.
- Make a home work for you: Home ownership isn’t all it’s made out to be. Homes are usually not good investments. But, with a live in flip, you trade a little sweat for a lot of dollars. You need a place to live. Why not make your home work for you?
- Money, sweet money: Don’t forget about those beautiful, tax free capital gains.
I’ve saved one of my favorite parts of the live-in flip for last. The work can be tremendously rewarding. On a nice summer evening, there is nothing like sitting with friends on a beautiful deck that you’ve designed and built.
More 1500 Days!!!
You can also find me (and the dinosaurs) at:
Mile High FI podcast:
Also here:
- EconoMe: Hey look, I’m speaking at EconoMe later this year!
- Facebook: Facebook group and page
- YouTube: My channel is mostly devoted to home improvement, but I have some other material coming up soon too.
- Instagram: Pretty pictures of dinosaurs, sunsets, and nail guns!
- Twitter: Spontaneous, often insane, ramblings
- Coworking space: On the surface, MMM HQ is a coworking space. Look a little deeper and you’ll see that we’re really building community. The members of MMM HQ are some of the finest people I know.
Other resources I like:
- Camp FIs are amazingly fun! I hope to attend Rocky Mountain and Joshua Tree this year. See you there?
- Need to learn how to invest? The Simple Path to Wealth is all you need.
- New to FIRE? Need some FIREy guidance? Check out Fiology and the accompanying workbook!
Now you’re making me want to update our two bathrooms from the 70s! We got it all – green toilet and tub in one and butter yellow toilet and tub in the other! I’m glad that buying split levels with pools hasn’t set you back too much 🙂
Gwen @ Fiery Millennials recently posted…Where the Monthly Status Reports End
Hmmmm, I like work trips! Just sayin’!
I was surprised to see solar on your list if you intend this house as a flip. I’m sold on the long-term ROI and eco factors, but do you expect a good return on solar through a shorter-term sale? Our expected time frame in our new house is making me hesitant.
Sharp question! There are two explanations:
1) The previous owner put this crappy vinyl siding on the home. There is an exterior wall next to a roof surface where it gets so hot, the siding melts. I took temperature readings on solar panels and found that they stay 30-40 degrees cooler than the roof surface. So, putting panels on keeps me from having to put new siding on my home. Because I’m doing the panels myself, it will cost around $12,000, cheaper than siding too.
2) We plan to stay in the house for 7 more years. My gas-burning furnace is 22 years old, so near end of life. I will replace it with a heat pump soon. I also plan to purchase an electric car in the next couple of years. So, being able to heat my home and fuel my car with solar panels is very appealing.
I’m confident that the money I’ll save in electricity and car fuel alone in the next 7 years will exceed the cost of the panels.
Now, this job would not be worth it if I wasn’t DIYing it. I got one quote for fun and it was around $30,000.
I love this! Thank you so much for sharing all the details of your experiences with this.
We bought a major fixer-upper almost 3 years ago that we’ve unintentionally turned in to a live-in-flip. It was over $300k cheaper than the houses we liked in our area that weren’t a dump, so seemed worth the risk. Although we hired out some bigger projects (like mechanicals, windows and kitchen), since our kid was young and we were both still working in the beginning, we’ve done a lot of the work ourselves and fallen in love with the process. Not to mention the savings and reduced frustration from not having to deal with contractors.
Probably another 6 months to year of work left before we can enjoy the spoils for a couple years, sell, and repeat the process.
I love the picture at the bottom Carl! Must make it feel worthwhile.
If you were starting again on the flip path, what would you do differently?
And how would you get the balance right between the time it takes to work on flips vs having time for family / other pursuits?
Interesting stuff Mr. 1500! How do you rationalize your profits against the statistics that say most people don’t actually earn back the money they invest into renovations?
Perhaps it’s all the manual labor you’re putting in that isn’t being charged by overpriced contractors?
Just curious! Congrats on those sweet profits!
Mr. Tako recently posted…The Epic Quest For Multi-Baggers
How did you figure out how to do the work yourself? Youtube is one thing but it’s about knowing what terminology to actually look up.
The other day, someone came up to fix up the house and he used the terms like “sheetrock”. I’m sure there are more non-everyday words as you go down the rabbit hole of fixing and upping. How did you figure out how to do it? Just trial and error?
David @ Filled With Money recently posted…What Makes a Good Investor and How to Become One
YouTube and library books! Regarding the latter, I replumbed most my last house from one book. With my current home, I wired my basement with just one book as well. Google helped a lot, but the stuff just isn’t that hard!
BTW, sheetrock is the same thing as drywall, the stuff your walls are made of. 🙂
Two great points I got out of this Carl, don’t do flips when you’re kids are young, and YouTube is a great resource! Great article overall. I think a lot of people, myself included, have been hesitant initially to do the live-in flip or house hack due to the steep prices these last few years, but you’ve proven there are always deals to be had!
The deal is the hard part! It took us a loooong time to find this one!
What you have achieved is amazing. Do you have any advice on how to start doing your own major renovation? Our house needs some renovating as it is over three decades old with some original finishes, as well as a master bedroom layout that just plain sucks. I hired an interior designer because I couldn’t figure out how to get a good bathroom layout as well as functional closets into our space, but she and her contractor just quoted us $133k and it didn’t even include everything we had discussed. The layout she showed us was great, but it was as if the budget I had discussed with her didn’t even exist.
We want to somehow figure out how to do the master suite ourselves since we do have a little bit of skill and no timeline and aren’t currently using the master suite, but how do you start as a DIYer? How do you design a plan and figure out permits?
Thanks for any advice. Also, are there any recommendations on what I should read/watch?
Hi Liz!
Thie email speaks to me because the last major project on our home is a complete reconfiguration of the master bath/bedroom. Everything is moving, so I’m redoing all of the plumbing and electric. As part of the project, our original closet space went away and I had to figure out where to add new space. It took me 6 months of thinking, but I finally came up with a solution. But this isn’t about me! 🙂
$133,000 for a master bath/bedroom reconfiguration? Now, I’m not sure what’s all going into your project, but that sounds like a lot of money. Finishing my basement (including adding a bathroom), building a very fancy custom deck and pergola, a complete kitchen remodel, new flooring throughout the house, 2 bathroom remodels, replacing 12 windows and 3 sliding doors, and my own master bath/bedroom remodel probably won’t cost $133,000, but labor is the major cost and I’m doing it all myself. However, maybe you’re adding on to the footprint of the home or popping the top?
If you don’t mind, perhaps you could send me more details of the project over email. It’s difficult to offer advice without knowing more about the project. If you can, send me photos and plans: mr1500@1500days.com
Hey Carl, thanks so much for writing this post. I have been wanting to email Mindy about some suggested qualities of Live-In flips but I always stop and think oh, she’s got so much on her plate I probably shouldn’t bother her or that she’d reply duh, buy a house you like, in an area you can live in and don’t over-improve it, lol.
One thing I would have never considered is the ease (or lack of) permits and probably follow up inspections as well. We live just outside of Austin and are poised to do very well in selling our residence of the last 20 years mainly due to good luck (and Austin’s transformation as well as the amount of land we bought back then) but we have been wanting to move back into Austin to make our life more convenient as we keep aging. However I have read that Austin’s permitting processes are months behind as are inspections.
Also, your suggestion to wait for the right property resonates in my head as we had planned to sell and if we couldn’t find something right away then to rent and wait for one. However, Austin, like many markets these days has become a cash offer market and maybe we should acquire something before we sell. Every so often the news runs a story about a couple that has been been getting outbid on homes for years and decides to just leave the area so I probably shouldn’t dismiss that possibility either. Maybe stay here longer, get a cash out refi to purchase the next one first then sell the current home.
Anyway, all great points, at just the right time for us so thank you again.
BTW, listened to your interview on the How To Money podcast and you mentioned one of the companies in your index fund is Schlumberger. Funny story, I had a meeting in Houston with them a few years back and I started my presentation and said their name just as you pronounced it. Found out quickly it’s pronounced Slumber-jay. Wish I had been on a Zoom meeting so I could have pulled out the Ethernet cable under my desk with my foot and blamed it on “connectivity issues” and maybe get a different group in a subsequent meeting. But no, I had to stand there in front of a roomful of people staring back at me with a What-a-dumb-a** look. Ah, good times. 🤦♂️
Hi Tim!
Buying a home now is painful! If you have a sizeable after-tax portfolio, you may want to consider a margin loan. Here’s an article from MMM explaining how to do it: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/ I lent a friend money from my IB account so he could make a cash offer and it worked out great!
Slumber-jay! Whoops! Who knew? Not us apparently! 🙂
I was just in Austin for the first time in 20 years. Holy cow, that place has CHANGED!