You can certainly live in a home that you intend to fix up and sell for a profit. But should you? That’s another question entirely.
Live-in flips come with some serious advantages — especially tax-wise. They’re not perfect, though, and there are some drawbacks you’ll want to think about before making your move.
Are you considering living in a house while flipping it? Then consider these pros and cons.
Pro: It might exempt you from capital gains taxes
If you’re willing to live in the house for at least two years, then you won’t have to pay capital gains taxes once you sell it. Depending on how much you profit on the home, this could save you a pretty penny.
Con: Your mortgage options may be limited
Not all mortgage products work with fix-and-flips. Though you could technically use an FHA loan for one, these come with strict property requirements for habitability, which a home that needs major TLC may not meet. Hard money loans are out, too (at least if you want the capital gains exemption). These typically need to be repaid within a year or less.
Pro: You’ll have more time to fix up the property
When you’re living in the house you’re flipping, there’s no rush. You can work on projects on your own time — after work, on the weekends, on holidays, or whenever you have a few free minutes. It feels less than a job and more like a hands-on hobby.
These arrangements also give you more time to build up your skill set. If you’re new to flipping, you can ease into it, learning new skills, perfecting your processes, and really improving the property’s value over time.
Con: You’ll be living in a disaster area
Living in a home that’s under renovation is no easy feat. You’ll be dodging tools, paint cans, tarps, and other materials for the majority of your stay there, and it could even be a safety hazard. It’s also probably not somewhere you’d want to bring your kids or pets.
Pro: You can spread out the costs of your flip
If your budget for renovations is tight, living in the home gives you a chance to spread those costs out and make them more manageable. Take on projects as you get the capital for them, without feeling rushed or under the gun for any reason.
Con: It will be a while before you make your profit
This isn’t the route to quick and easy cash. If you want the capital gains exemption, then you can’t expect those profits until at least two years down the road. That means you’ll need to keep your day job, which could delay the project even more.
Pro: You’ll only have one mortgage
A really nice perk is that you don’t have both your flip home’s mortgage and the mortgage (or rent) of your primary residence on top of it. This should free up cash flow and lighten your financial load. It might even make qualifying for your mortgage easier.
Con: You could damage the home while you’re there
At the end of the day, you’re living in the home, and that comes with the potential for unintended damage — especially if you bring along your family or pets.
The bottom line
If you’re buying a house to flip, you can definitely live in it while doing your renovations. Doing so could exempt you from costly taxes, help you spread out the costs of your flip, and give you more time to perfect the property and improve its value. Just make sure you have the right mortgage product lined up and are prepared for the living environment you’ll be experiencing. (And don’t quit that day job!)