Slow flip for a SAHD?

[Longwaytogo]

Hi all,

This is not something I'm in a position to do right now; but would be interested in maybe 2-3 years. I am a current stay at home dad with 15 years in residential construction and remodeling  (still do part-time). Our plan was once kids get to school age I would go back to work full time. But now my wife and I love me staying home, doing the grocery shopping, cooking, cleaning etc. So we are brainstorming ways to make this continue to work and get onto some kind of FIRE plan (right now we are in a mess of debt and just staying afloat while I stay home).

So my thoughts are-
1. Sell current home and net maybe $50-60K
2. Buy new home (also closer to wife's work) needing work for 200-250K (putting 20% down to avoid PMI)
3. Spend 2-4 years remodeling and/or expanding and then sell for a profit
4. Repeat 4-5 times landing on our "forever home" which we could pay in cash

Basically my "job" would be working on the house, leaving me to still get kids off to school, be there when they get home etc.  I understand as long as you occupy the house for 2 years you also pay No taxes right? So other than the obvious living in a construction zone, hassle of moving how does the idea sound?

Anyone done similar?

[arebelspy]

I understand as long as you occupy the house for 2 years you also pay No taxes right?

Yes, you can exclude up to 250k capital gains if single, 500k if married, if you've lived there at least two years (if/when you rent it out, it then gets more complicated/prorated, but if you never do that, it's as straightforward as that).

So other than the obvious living in a construction zone, hassle of moving how does the idea sound?

Yeah, you may get sick of that living in a construction zone after awhile.  It is a pretty common strategy though.

One potential pitfall: if the house is in too bad of shape, it won't qualify for financing.  If it's in good shape, there may not be a lot for you to do (or at least not stuff that takes 2 years, so you may finish in 3-6 months and then have to sit there for 1.5+ years to exclude the capital gains).  So it's finding a "sweet spot" area that may be tough.

[GizmoTX]

What would work is if you could buy a second home to fix up while you live in your current home. When it is finished, sell your current home, live in the fixed home for at least 2 years, & find another fixer-upper to repeat the process. You would not be living in a construction zone & every house should qualify for the CG exclusion.

[scottydog]

It sounds like a great idea, especially given your background!  It could be fun for the kids to see the work, too.  Our middle child is only 4 but he loves any renovation projects and always has tons of questions.

I'm thinking of doing the same thing with our current home, which still has some unfinished space in the basement.  In the end, we may decide just to stay here, but even so we'll be able to enjoy the upgrades.  My work is probably much slower than yours because I'm learning everything as I go.

[Longwaytogo]

I understand as long as you occupy the house for 2 years you also pay No taxes right?

Yes, you can exclude up to 250k capital gains if single, 500k if married, if you've lived there at least two years (if/when you rent it out, it then gets more complicated/prorated, but if you never do that, it's as straightforward as that).

So other than the obvious living in a construction zone, hassle of moving how does the idea sound?

Yeah, you may get sick of that living in a construction zone after awhile.  It is a pretty common strategy though.

One potential pitfall: if the house is in too bad of shape, it won't qualify for financing.  If it's in good shape, there may not be a lot for you to do (or at least not stuff that takes 2 years, so you may finish in 3-6 months and then have to sit there for 1.5+ years to exclude the capital gains).  So it's finding a "sweet spot" area that may be tough.

Sweet for capital gains, that's what I thought. And you can do it multiple times right ? From what I understand and hear from my older relatives it used to be a one time exemption meaning once in your life; so people would try and use which house they had the most gains on.

Yes I have ran into the financing issue trying to do a typical flip (my partner/investor could do 20% down + reno but not front whole cost). Would need to keep that in mind as we defintley will have to finance.

If I found one in the lower end of price range I'm hoping I could keep pretty busy. Especially on some projects that are not as obtrusive to living in the house (deck/patio, finish basement, curb appeal etc.).  I would probably try and do kitchen/bedrooms before moving in. On the other hand "sitting there" would give me some family time over the summer (wife is a teacher) or continue doing smaller projects for friends and family (like I have been doing weekends/summer last few years)

As far as a sweet spot area, I have been looking around walking distance to wife's work. Seems like majority of houses are in the 340-400 range but occasionally some are 200-250. They are all very similar in size and age. Looking online it seems the biggest discrepancy is just condition of the house and basement status (many have added a full bath and egress window giving them a 4th legal bedroom). So in theory it looks good, but would obviously have to look at some in person and do much more research. Just wrapping my head around around the idea and determining how to sell it to the wife at this stage.

[Longwaytogo]

What would work is if you could buy a second home to fix up while you live in your current home. When it is finished, sell your current home, live in the fixed home for at least 2 years, & find another fixer-upper to repeat the process. You would not be living in a construction zone & every house should qualify for the CG exclusion.

With only one income and price of homes here there is no way I could qualify for two mortgages at once. My plan would be to sell and bunk temporarily at my parents or in-laws. This would also let me see exactly how much I net from the sale and avoid having contingencies when making offers on the next property. Hopefully being pre-approved with 20% ready would help me on making strong offers. I would probably do some reno before moving in too avoid too much construction zone. Or send wife and kids to friend/family vacation spots for a couple weeks over a summer for really dusty/disruptive portions.

It sounds like a great idea, especially given your background!  It could be fun for the kids to see the work, too.  Our middle child is only 4 but he loves any renovation projects and always has tons of questions.

I'm thinking of doing the same thing with our current home, which still has some unfinished space in the basement.  In the end, we may decide just to stay here, but even so we'll be able to enjoy the upgrades.  My work is probably much slower than yours because I'm learning everything as I go.

Yeah I think it would be fun/educational for kids also. Could even be a way for them to earn some summer/college money in their teen years by helping out some (only 2 and 4 now). My work is fast for customers, but sometimes slow on my house (just ask my wife!!). But my initial push to get it move in ready was pretty quick, just the screen porch, fence, built-ins extra credit type stuff that drags out.

One problem is that we really like our current house/neighborhood. So I guess question is weighing whether we value me staying home more than where we live. I also would not mind traveling some in the summer months when we are mortgage/house maintenance free in between flips and being sort of nomadic for a few years (while staying stable enough 10 months of the year for wife to keep her govt job and benefits). But not exactly sure how keen the wife is on all the shuffling/moving. I pointed out that de-cluttering and being more minimalist would make the process much easier/more enjoyable.

[GizmoTX]

This is from a local real estate blog on how a renovated house for sale has made some crucial mistakes:

http://candysdirt.com/2014/09/23/tuesday-two-hundred-updates-come-close-miss-mark-little-forest-hills-home/

In other words, space & flow are crucial, not just fresh paint & cabinets.

[Longwaytogo]

This is from a local real estate blog on how a renovated house for sale has made some crucial mistakes:

http://candysdirt.com/2014/09/23/tuesday-two-hundred-updates-come-close-miss-mark-little-forest-hills-home/

In other words, space & flow are crucial, not just fresh paint & cabinets.

Yes I realize there is more to a flip then paint and cabinets. I've remodeled hundreds of homes. Many just focusing on one room (kitchen and baths especially). But whenever we have done whole house remodels tearing down walls is always one of the first steps to improve the layout/flow. Even many of our kitchen remodels include knocking down a wall or two to open to dining room etc. Some kitchen jobs we have actually won the bid because the "kitchen specialists" were unwilling/unable to tear down the walls (especially structural ones).

I agree with the things they pointed out that were done poorly in the article. In fact one of the reasons I'm so interested in doing it is because I feel I can do so much nicer of a job then a lot of the "flippers" I see in our area.

I guess our big hurdle is just whether we really want to try and move closer to my wife's work. The places we can afford are not quite as nice an area as where we live now. The places that are close and nicer are way out of our price range. One of our ideas is to try and do 2-3 flips while the kids would be attending the elementary school (where my wife teaches); and then hopefully make enough money on those to move 1-2 miles over to the nicer school district for their middle and high school years. Still lot's to consider. I'm trying to do some rough numbers and estimates to present some sort of plan to my wife and see what she thinks. I have showed her the MMM commuting article but she still feels her 12 miles is no big deal. If we moved within 1-2 miles of her work and I was mostly SAHD with some part time work we could easily drop down to a 1 car family which I think would be awesome.

[escolegrove]

What you are describing is what we did with out first home only we are in it for buy and hold renters not flippers :) we were very successful and would do it again if the situation made sense. The biggest mistake we made was over updating it for a rental. While the double headed shower and wooden closet system is awesome. It certainly is a little over the top for a rental.

Would your current house be a good rental? Could you afford the next house based on your wife's salary with nothing down? We buy personals with as little down as possible this way we are lee raging our cash and our tenants are paying the "full" price of the house.

Let me know if I can help with mortgage strategy. I have also written a few articles about different types of mortgages and the strategy behind them on my site. We have bought our fourth house on an 0-2 salary and our fifth on an 0-3 military salary. So if there's a will there's a way! We definitely have the same idea, for me to eventually be able to raise our child while I am working on our rentals.

[retired?]

I read about this strategy and thought it was great for singles and like-minded couples, but perhaps harder for families.

As someone who moved in 2010 and then in 2013 with kids in school, the immediate concern is having your kids change schools on a regular basis.  That can be very disruptive to them, having to make new friends every few years.  Some say it is good for them since it will help when they are adults.  I've seen both sides of it (as a kid and with my current kids).

If you have lots of possible homes in your school district, then not a problem.

[Longwaytogo]

What you are describing is what we did with out first home only we are in it for buy and hold renters not flippers :) we were very successful and would do it again if the situation made sense. The biggest mistake we made was over updating it for a rental. While the double headed shower and wooden closet system is awesome. It certainly is a little over the top for a rental.

Would your current house be a good rental? Could you afford the next house based on your wife's salary with nothing down? We buy personals with as little down as possible this way we are lee raging our cash and our tenants are paying the "full" price of the house.

Let me know if I can help with mortgage strategy. I have also written a few articles about different types of mortgages and the strategy behind them on my site. We have bought our fourth house on an 0-2 salary and our fifth on an 0-3 military salary. So if there's a will there's a way! We definitely have the same idea, for me to eventually be able to raise our child while I am working on our rentals.

Our house would probably be rent-able, but certainly not meet any of the guidelines suggested here. (like 1% rule, etc.) The only way I would consider renting it is if we think we may return here as our retirement house (which is a strong possibility). We could not qualify for another house with this one on our income. If we moved in with my parents and showed a 2 year rental history it sounds like we maybe could do it. But not sure how keen I am on that idea. We also have a ton of consumer debt right now so until we get that cleared up we can't do anything

[Longwaytogo]

I read about this strategy and thought it was great for singles and like-minded couples, but perhaps harder for families.

As someone who moved in 2010 and then in 2013 with kids in school, the immediate concern is having your kids change schools on a regular basis.  That can be very disruptive to them, having to make new friends every few years.  Some say it is good for them since it will help when they are adults.  I've seen both sides of it (as a kid and with my current kids).

If you have lots of possible homes in your school district, then not a problem.

Yes if we do it, we were hoping to stay in the same school district if possible. Part of our motivation though was to get out of our current school district where our kids would be the extreme minority (like less than 5% of the school). But moving to a more diverse area is much more expensive. So not really sure what we could do/afford. For now after a big discussion with the wife over the weekend it sounds like the plan is to have our kids attend elementary school in our current area and then possibly move into another part of county for 8-10 years while they attend middle/high school. Then maybe move back to our current area where it's cheaper for their college time and possibly be our retirement home.

So sounds like we are sitting tight for 5-6 years. Our decision may hinge partially on what my siblings, parents, aunts/uncles, and cousins do in the next few years. We live on my family's old farm that has been sub-divided into 15 single family homes, 12 of which are still family members. So if some of them start selling/moving (as they have been discussing) that could affect our timeline as well.

I still think the slow flip could be a viable option though for the 8-10 years stint in the other areas which may actually help us to afford living in the more expensive spot. If we could do it like 3-4 times with rolling over the profits into the next property hopefully by the time we sold the last one to downsize/retire we should have a nice chunk of change.

[MarkFerguson]

This is a great way to build wealth.  I wish I would have done it more before I had a family.  The great part is the tax free money.  There is no limit to how many times you can do it.  I think you have a decent plan, but as was mentioned I would watch out for a few things.

1. You could buy with much less down as an owner occupant if you wanted too. You would have mortgage insurance which would increase your payment, but you mention you are in debt now. Maybe it is smarter to buy with 5% down and pay off other debt with your down payment money?

2. The home will have to be in livable condition for most loans.  Buying a home that is outdated but not destroyed is a good way to build value. Redo baths, kitchens, flooring, fixtures, finish basements etc. 

3.  Writing out a business plan is a great idea. 

4.  At some point you may want to think about rentals. Te flips provide income, but rentals provide wealth.  Maybe when you buy your dream house for cash you can look I to buying rentals.

[mamagoose]

"Slow flipping" sounds a lot like what the folks at younghouselove.com did, they kept fixing up houses and moving into bigger & better homes along the way, a few years spaced in between.

Living in a construction zone is only as bad as you think it will be. I have a friend who is a residential builder and he makes his money renovating McMansions into green homes, with his wife + 3 young kids in tow. They move all the time and always have some kind of construction going on in the home (shuffling one room at a time), but the kids are used to it b/c it's all they've ever known, and they get to hang out with their dad every day :)

[Longwaytogo]

just checked out that younghouselove.com briefly; looks like a cool site. It does look like they did the slow flipping. Definitely would take the trade off of living in a construction zone if it would allow me to continue staying home with the kids. We have 3-4 years to get our credit card emergency knocked out and that will allow us much more flexibility in selling/renting our current place.

So I doubt anything will happen before then. Although I have been looking to do a possible flip or rental with a partner. Put a few offers back in late Winter that we did not get. Then kind of put project on back burner. May start looking again soon or try and wait one more year.

[DollarBill]

I know this might be a newbie comment but I can't wrap my head around doing flips. When I do the numbers in my head I can't figure out how someone can make money after adding up:
-Interest payments
-Construction cost
-Closing cost
-Commission during sale
-Time spent
-Taxes
-Insurance

I think if I was to do something like this then I would fix it up to rent it out. Then live in it for 2 years before I sell it at a future date.