What is Live In Flip and How Does it Work

Are you considering getting into house flipping, but you have concerns about the risks? And do you need somewhere to live at the same time? A real estate investing strategy known as live-in flip might be the answer to both those questions. 

In traditional house flipping, you buy a property, renovate it and try to sell it for a profit in about three months. A live-in flip is a much slower march toward a return on your investment. It can provide you with several advantages you don’t get with regular house flipping, however, including a home to live in and the potential to keep more of your profit. 

Learn more about this real estate investing strategy to decide whether it might meet your financial goals.

What Is Live-In Flip?

The live-in flip strategy is where you buy a property that needs repairs, then move in, renovate it over time and later sell it for a profit. With a traditional house flip, you’d buy a fixer-upper, complete repairs and upgrades as soon as possible, and sell it for a gain, typically within three months.

Under a traditional flip, you want to sell as soon as you can to avoid carrying or holding costs — mortgage and interest payments, property taxes, insurance, homeowners association fees, utilities and typical maintenance — which can eat into your profit.

However, if you live in and flip your home, those costs just become your housing expenses while you’re in your home for a year, two years or however long it takes you to finish renovations. When you finally decide to sell, you have the potential to recover those expenses and still earn a profit.

With a live-in flip, you can sell the property after remodeling, refinance it and lease it to a long-term tenant or offer it as a short-term rental. The method you choose to earn your profits may be impacted by local regulations and market conditions, so it’s critical to do your research.

How Does Live-In Flip Work?

Here’s a closer look at buying homes to flip with the live-in strategy.

Find the Right Property

Look for a flip home, or an undervalued house, in a desirable neighborhood, one near good schools and good infrastructure. While the home may be below market, check that it has the potential for appreciation after repairs. Also assess whether the house has major structural damage or whether the needed repairs are something you can afford.

Choose Your Finance Option

Real estate investors often use hard-money loans for traditional house flipping. These short-term loans are secured by the property and typically come with high interest rates. However, for a live and flip, you may pursue a traditional mortgage, specialty loans or an FHA 203(k), a mortgage backed by the Federal Housing Administration that allows you to finance the home and renovations in one loan.

Plan Your Renovations

Create a budget and timeline for your repair and renovations, which will be the biggest costs in your project. Target the areas of your home that can give you the highest return on your investment, such as the kitchen, bathrooms, floors and curb appeal. Consider getting estimates before beginning any work.

Live in Your Home While Remodeling

You’ll be living in a construction zone, so plan for it. Select an area of the home where you can live with minimal disruption and avoid dust and construction debris. You may also need to make temporary living arrangements during certain projects that significantly alter the way your home life functions, especially if you’ll need to cut off heat, air conditioning or plumbing.

Sell Strategically

Once renovations are complete, watch the market to sell at the right time. However, consider living in your home for at least a year, or even two. If you sell after one year, you’ll pay a long-term capital gains tax on the profit, which is likely a tax advantage over selling in less than a year. If you sell after two years, you may be able to exclude a lot or all of your capital gain.

Pros of Live-In Flips

• More financing choices
• Low down payment
• Lower interest rate
• More time to remodel 
• Tax advantages

Cons of Live-In Flips

• Stricter mortgage requirements
• Inconvenient living
• Navigating building codes
• Deciding not to move

Live-In Flip vs. House Hacking

While some consider a live-in flip a subset of house hacking, the latter traditionally involves buying a multi-unit home (a duplex, triplex or quadplex), living in one unit and renting out the others to cover your mortgage and expenses while earning a profit.

Tax Implications

Living in a flip home can provide you with a few tax benefits before and after you sell. You may be able to deduct the costs of remodeling and repairs to improve property value to reduce your taxable income. Maintain good records for your deductions.

With typical house flipping, you sell your home in less than a year and have to pay taxes on the profits as ordinary income. You potentially lower your tax bill with a live-in flip by selling your home after a year and paying a capital gains tax of 0%, 15% or 20%.

However, you can pay even lower taxes or none if you qualify for the section 121 exclusion from the IRS. If your home is your primary residence for two years out of five before you sell it, you can exempt the first $250,000 ($500,000 if married and filing jointly) in profit from capital gains.

Tips for a Successful Live-In Flip

• Speak to mortgage brokers about financing options
• Prioritize high return on investment improvements (kitchen, bath, curb appeal)
• Create a budget and stick to it
• Do work you can handle, but consider hiring contractors
• Remodel and complete one room at a time
• Understand zoning and permit requirements
• Keep good records for taxes

Decide Whether a Live-In Flip Fits Your Investing Goals

The live-in flip strategy for investing in real estate can provide you with several benefits over traditional house flipping. You can enjoy financing choices and potential tax savings, and you have a place to live with one mortgage. However, you also have to live in a construction zone until work is complete, and you might become attached to your new home. 

Now that you understand the advantages and disadvantages, you can decide whether investing and living in a flip home is right for you. 

Frequently Asked Questions