Live-in-Flip!
How we traded our liability for an asset, moved closer to work, and decreased our living expenses all with a happy family.
Who:
- Want to house hack but:
o You or your spouse can’t imagine living next to your renter?
o Have a large family and need a home with a lot of room?
o Don’t want to live in a 3/2 in the multifamily section of town?
o Have pets and need a yard?
What:
- Live in Flipping (LIF) may be a solution to turn your home liability into an asset within the above limitations. Definition: Buy a house below market value (foreclosure, FSBO, REO, Short sale, Distressed, wholesale), fix it up, live in it for at least 2 years, sell it at a profit (or at least a decreased living expense).
Where:
- Want to move to a nicer part of town, or closer to work
o But can’t afford it?
When:
- Whenever it makes sense for your family, but try to time the sell during the spring, summer, and early fall months
Why:
1. Decrease living costs = save more
2. Move closer to work (more expensive market) = Save time (#1 asset)
3. Profit! if you buy it right
4. Live in a house you designed
5. Capital Gains Tax exemption
6. Family getting bigger? Find a house that fits your situation
7. Purchase a flip with a low interest and/or low down personal loan (VA, FHA, etc)
Why Not:
1. Possibly living in a construction zone (can avoid by flipping on the front-end)
2. Need to put in sweat equity or not overpay for rehab (relationships!)
3. Moving is a pain (sometimes)
4. Don’t have a family, or lifestyle you need to maintain? (House hack instead)
We decided to LIF due to the following factors:
1. Current drive time was 45min each way (1.5 hours total). LIF totaled 50mins
2. Current home was running out of room for our growing family
3. Current home required a lot yard maintenance (time)
4. Wanted to take advantage of a House Hack or LIF to reduce living expenses
5. House hack did not work for our large family, lack of multifamily near work and little interest from the family in “downgrading.” Or living near tenants/guests.
Analysis of staying in our current home for 2 more years:
***When using this it factors the following***
1. Utilities (to have a more accurate comparison between homes)
2. Mortgage interest paid (accurate actual cost of living)
3. Sales costs (realtor, closing, taxes (if applicable))
4. Repairs, maintenance, and capital expenditures
5. How long you will live there
After months (almost a year) of searching and driving, we finally found a FSBO that had been on the market almost 1 year and was priced below market value.
Advantages:
o 20mins closer to work (saves 40mins/day)
o Larger (for a growing family)
o Below market value
o Less yard maintenance than current (No: leaves, acorns, tree debris… better drainage)
Flipping Strategy:
- Rehab on the front side (don’t have to live in a construction zone)
- Do as much of the rehab ourselves as we had time/energy/want to do
- Hire a contractor for the rest
Flipping Execution:
- First, the home was bought below market value ($135/sqft with comps at $150/sqft)
- The home was listed at 5 bedrooms (actually had 4), but it had space to add closets to the bonus room and office making it a 6 bedroom.
- The house was built as a spec home with poor finishes (roll down laminate, builders grade carpet, poor color choices). Fixed with paint, new LVT flooring, and carpet, fixtures, and built in cabinets in the living area.
- The bathrooms were designed at the lowest cost possible (looked like 1995 bathrooms), a quick refresh of tile and vanities as well as adding a shower in the ½ bath made it a 3 bath home.
- The backyard had poor drainage, but a quick re-grade and adding a deck and patio (sweat equity) fixed that.
Analysis of this LIF after 2 years:
Comparison:
Time: Saved 40mins/day in driving time and 1 hour/week in yard maintenance (424 hours over 2 years!)
QOL: Lived in a wonderfully designed and spacious home with space for guests during a time when travel with small children was difficult. This meant family members could visit more often and we could host more family members during the holidays.
Profit: Though we won’t exactly profit (this lifestyle is expensive) we do save $ compared to staying at the other home. $41472-$31665 = $9807 saved over 2 years. About $300 cheaper/month. That’s $300 more per month we can put toward passive income streams!
Happy Hunting!