You know in your heart that you want to make money in real estate. But a problem arises when you contemplate paying for housing and financing a second investment property. Your courage shrinks at the thought of two house payments hanging over your head every month. It leaves little room for error and plenty of space for financial distress. These are normal and intelligent concerns, but they give rise to the question: Can I live in a house and flip it?

Yes, You Can Live in a House and Flip It

Known as a live-in house flip or live-in house flipping, it is a residential real estate investment strategy that people have utilized for generations. My paternal grandparents improved their economic situation with live-in house flipping starting during the Great Depression in Detroit.

My grandparents’ first house flip illustrates the principles of house flipping in general. To make money flipping a house, you buy a run-down, outdated property, fix it up, and sell it for a substantially higher price within months or a few years of your purchase.

The improvements that you make with repairs and updates add value to the property or “force equity.” The repairs and remodeling rapidly raised the home’s value, which means you can sell it for more than you financed and the money you spent on repairs.

In my grandparents’ case, they bought a house without plumbing. Grandpa dug a trench to the water and sewer lines in the road and connected the house to them. He plumbed the house so that it had a proper bathroom and kitchen. As you can imagine, this upgrade made it worth much more, which meant that he could sell at a high profit and buy a nicer house and start the process all over.

Live-In House Flipping Takes Longer

In a regular house flip, the investor tries to rehabilitate the home in the shortest span of time possible. Every month that goes by reduces profits because you have to make loan payments. For this reason, home flippers will try to rehab and sell within two to three months.

A live-in house flipper, on the other hand, has a reduced sense of urgency. You need to pay rent or mortgage to live somewhere. If this personal expense is going toward your house flip, your month-to-month loan costs aren’t straining your budget or your projected profits in the same way. There are also potential tax advantages if you own the house for two years before selling it.

Financial pressures aside, live-in house flipping takes longer because you have to keep the house in a somewhat habitable fashion while you conduct repairs.

You can’t gut the whole place down to the boards all at once and tear out every toilet and still live there. You need to segment the rehab into multiple projects performed sequentially.

Better Financing Options for Live-In House Flipping

As a general rule, mortgage interest rates are lower for loans on owner-occupied homes than investment properties. This is presumably the case because people should be more motivated to pay their home loans for their residences. They end up in the street if they don’t. An investor has a lower possibility of facing life in a homeless camp if he or she fails to pay.

Depending on your income, credit rating, and income-to-debt ratio, you could qualify for a mortgage with a low down payment. Keep in mind though that a low down payment will obligate you to buy mortgage insurance of some kind, which adds to your housing expenses.

Conventional – With a good credit score, you could apply for a conventional loan. You may get approved with as little as 3% down plus your closing costs.

FHA – These loans are backed by the Federal Housing Administration. If a low credit score has prevented you from getting a conventional loan, then an FHA loan could work. You’ll need a down payment of 3.5% to 10%.

Watch Out! FHA Loans Come With High Mortgage Insurance Costs

USDA – If you’re looking to buy a home in a rural area or small town, you could apply for a USDA loan as long as you have an adequate credit score. If approved, you can move forward with a 0% down payment.

Potential Tax Advantages of Live-In House Flipping

Making a profit when you sell the home that you live in does not automatically impose taxes on you. The profit from the sale of an asset (your home) counts as a capital gain. This is the whole goal of your house flip, but it’s good to know the tax rules so you can limit or avoid capital gains taxes. According to the Internal Revenue Service in 2023, an individual can exempt $250,000 ($500,000 for married couples) from capital gains taxation on the sale of your primary residence. To qualify, you must own and use the property for at least two years out of a five-year period.

For this reason, live-in house flippers may aim to complete the rehabs of their residences in about two years.

If you sell your home after a shorter period of ownership or the IRS has classified you as being in the business of house flipping, you should explore your options with a tax adviser. You may owe capital gains taxes or self-employment taxes.

Who Can Live in a House and Flip It?

Anyone capable of purchasing a home and who puts in the work of fixing it can do a live-in house flip, but you should not enter this situation lightly. Put in some honest thought about whether you can tolerate living in a dusty, semi-chaotic mess day in and day out. Many people enjoy their homes as havens from work. As a live-in house flipper, your house will be your work camp. Relaxation, entertaining, and general enjoyment of life will be compromised as you labor away on remodeling and coordinate jobs with contractors.

The question of can I live in a house and flip it is fully answered once you assess your tolerance for the situation. The inconveniences can be worth it because you should sell your home at a profit and have more money to get another house or choose another investment.

For the most part, the people living in houses that they plan to flip tend to be single or childless couples.

That said, parents can leverage this strategy to make money from real estate as long as they accept the extra challenges of rehabbing a home while raising children.

It can be done, but you better have a deep reservoir of energy and plan for an above average number of setbacks. You’ll likely need more time as a parent to rehab a house. Children tend to get sick a lot. You’ll need to take time off to care for them. And of course, when your children inevitably infect you, you’ll need to take more time off.

Despite the extra burdens faced by parents, growing families have much to gain from house flipping. You can use the money made by forcing equity in a handful of years to buy the bigger house that you need.

Top Challenges of Live-In House Flipping

Finding a Property Where the Numbers Work

As with any house flip, whether you live in it or not, you need to find a property where you can make money.

A house that you can flip to make money is one that is below market value for its neighborhood. Its value is below average due to being damaged, run down, or terribly out of date in terms of how it looks.

Ideally, you’ll find a house with cosmetic issues that you can improve instead of very costly structural issues that require specialist contractors, like a bad foundation or bad electrical wiring or plumbing.

How to Find Houses With Lower Prices When House Cost too Much

Financing a Fixer Upper

Lenders don’t like to issue loans for dumps. They want habitable homes that are structurally up to code. Even if you consider a place habitable, lenders may disagree on its worthiness for financing.

You may need to find a lender willing to take on the risk of rehabbing a house in bad shape. Private lenders exist who will issue rehab loans if the numbers show that the home can sell for a profit once it’s fixed up. Expect to pay higher interest or give over an equity stake if this is your situation. If that does not suit you, keep looking for a different property.

Discovering Expensive Problems After You Buy

An expensive and unexpected repair after buying a home is the bane of every house flipper and really just anyone who buys a house.

Inspect homes very carefully before making an offers. Consult experts and educate yourself about what to look for. If you don’t understand an issue, learn what you can about it before making an offer.

For example, don’t assume a roof that looks OK is OK. I bought a house with a roof that had been reshingled within the past five years. The shingles looked new, but after buying the house, I learned that they had not been nailed on correctly and they were tearing free of the decking because I have a steep roof. So the house with a newer roof that I bought ended up needing a new roof the same year I bought it.

You Procrastinate and Don’t Get the Work Done

You can live in a house and flip it unless you fail to get the work done. Then you’re just living in a house that needs work.

It’s all too easy to get some walls torn out and feel discouraged by how slowly the work proceeds.

Realistically, you’ll need to take breaks along the way during your live-in house flip, but don’t let breaks turn into failure. The only thing worse than trying to sell a run-down house is trying to sell a house with a bunch of half-finished repairs.

Market Is Bad When You’re Ready to Sell

You’ve done the work, and the house is looking great. Unfortunately, the market has weakened, and you can’t list for the price that you had planned on.

When this is the case, you’ll have to decide to wait or sell anyway if you can still make a profit, even if it’s a smaller one. Waiting to sell may not be the end of the world with a live-in house flip because it is your home. You can just keep living there.

If you must move, you could consider renting the house and waiting for when you can sell it for a better price. The house would then produce income and at least support its own expenses while you move on to your next project.

A live-in house flip is a big undertaking. But your labor could earn you tens of thousands of dollars. Live-in house flippers often see their paydays as recouping all of their housing expenses from the previous year or two. In the end, they get back what they paid in house payments plus a profit.

Related articles:

Watch Out! FHA Loans Come With High Mortgage Insurance Costs

Flipped House Red Flags to Watch Out

How to Find Houses With Lower Prices When House Cost too Much