Should You Flip a House by Living in It First? Pros and Cons
One popular method of flipping houses that's picking up steam in recent years has been the live-in flip. In this approach, you find an older house you want to flip, then rent it out while you do renovations to the home—and live in it while you do so. Is this strategy better than hiring contractors to do the work? It’s debatable, but there are certainly pros and cons to consider before you make your decision.
What is a live-in flip?
A live-in flip is when you buy a fixer-upper, live in it while you renovate, and then sell it for a profit. This can be a great way to get started in the real estate market, but there are some pros and cons to consider before taking the plunge. Live-in flips are usually cheaper than buying an already renovated home, which means that your return on investment will also be lower. Live-in flips also have higher turnover rates because they aren't as attractive as more traditional investment properties. On the other hand, flipping houses via the live-in flip can help improve your credit score which could help you borrow money or purchase a home in the future. For many people who do not have a lot of experience with renovation projects, living in the house during renovations can provide valuable hands-on experience with construction work. Also, if you know exactly what type of house you want to live in and make this your first property investment, it's better to learn how to renovate from scratch than try and fail on another property.
What is a cash flow flip
A cash flow flip is when you buy a property, live in it for a year or two to make improvements, then sell it for a profit. The idea is that you’ll save money on rent and be able to put that money into fixing up the property, so you can sell it for more than you paid. However, there are some drawbacks of this strategy: 1) You'll need enough savings or income to cover your living expenses during the time you're living in the house; 2) Your tenants might not take care of your place like you would; 3) Moving back out will require major repairs due to wear and tear from being lived-in; 4) If it's not a good neighborhood with good schools, your family may have trouble finding another place they want to move into. There are also pros to flipping houses by living in them first:
1) You can invest less capital upfront because you don't need as much down payment; 2) You can live where you work and get a feel for what life is like before deciding if it's right for you (and if your potential buyers will love it); 3) Lived-in flips often close quickly because buyers prefer properties with furniture, pets, and maybe even kids' drawings on the fridge.
What you can expect
When you buy a house to live in, you typically have a down payment, closing costs, and moving expenses.
When you buy a house to flip, you still have those same costs.
However, you may be able to negotiate with the seller to pay some or all of your closing costs.
You may also be able to find a fixer-upper that needs very little work and is therefore less expensive.
The biggest downside to flipping houses is the risk involved. If you purchase a fixer-upper and don't know what's wrong with it, then you're rolling the dice on its condition.
If an inspector finds issues after closing escrow on the property but before doing any renovations, then those issues are yours to deal with.
In most cases though, if anything goes wrong while living in the home before flipping it, then repairs will probably come out of your pocket instead of from profits.
The pros of doing this type of flip
1. By living in the house as you flip it, you can save on costs like rent or a mortgage.
2. You'll be able to keep a close eye on the progress of renovations, ensuring that they're done to your standards.
3. Being on-site will also allow you to resolve any issues that come up more quickly.
4. In some cases, living in the property can make it easier to get financing for the flip. On the other hand, there are cons: 1. If you plan to live in the property while flipping it, this type of project might not generate income fast enough for your needs. 2. It could lead to strained relationships with family members who live with you if they feel too much work is being taken on without their input. 3. Occupants could end up using more utilities than normal (e.g., heating) which would increase energy bills and take away from potential profits. 4.
The cons of doing this type of flip
The first con is that it can be difficult to find a property that’s in the right location and also needs enough work to make it worth your while. Second, you’ll need to be prepared to live in less-than-ideal conditions for awhile as you renovate. Third, you’ll need to be comfortable with some level of uncertainty, as there’s always the possibility that something could go wrong with the renovation or that the market could take a turn for the worse. Fourth, living in the house means putting up with any potential problems or inconveniences related to living there until renovations are complete;
if you're not careful about what you buy (e.g., appliances), this could lead to increased costs when you sell. Fifth, this type of flip requires more time than the other types discussed above. Finally, flipping houses by living in them is likely to cost more upfront than other types of flips because repairs may need to be made before selling and utilities will have to be paid during construction. A quick search online showed that, on average, homeowners spend $9,750 on these projects. However, the good news is that homes flipped via this method tend to appreciate at higher rates than others and don't require buyers' homes inspections. So if you're interested in this method but aren't sure whether it's right for you, research the process and speak with an expert to get a sense of how much time/money it would take.
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