Live, Fix, and Flip

[waffle]

I bought my first house about a year ago. It was a short sale in Aurora, CO that was livable (at least by my standards) but needed a ton of work. We have been slowly but surely fixing it up and it is really starting to come together. Last year we paid 185k and fully renovated expect to sell for 240-250k (not counting any appreciation that may come before we sell).

Our plan wasn't originally to flip it, it was just what we could afford at the time and rent in the Denver area was/is pretty crazy. Now though I'm wanting to finish renovating in the next year and sell once we can take the capital gains exemption. Then find another fixer upper value closer to work and repeat the process every couple years. Does anyone have any thoughts on my plan? I'm married and have two kids. The renovations can be a little stressful on the family as there is almost always a room that cant be used because its being worked on, but no major stress yet.

[Another Reader]

When you are done, figure out how much of the value increase was from your work and how much was from the rapid run up in house prices in the Denver area.  My bet is most of your profit will be from the overall increase in house prices and not a lot on the work you will have done.  While you have hit on a good idea, the numbers have to work.  Unless you can get a good discount on the fixer (most of the profit is made when you buy), you will probably have difficulty profiting much from a slow flip.  That's especially true in a hot market, where a lot of people frustrated by high home prices have the same idea.

[waffle]

When we first bought last year houses of comparable size, but better condition were selling for around 220-230k so I think at least half of our current estimate would be driven by improvements and the rest from appreciation in the area during the last year. We've also been pretty frugal with renovation costs and have only spent about 4k so far. It will probably be double that by the time we finish though.

I can see where profits wouldn't be that much doing more slow flips vs just staying put and letting the equity flow in. There would also be the drawback of transaction costs when selling and buying.

On the flip side since I'm already in the area I can take more time to look for the best deals with the most upside potential and also get to a better location closer to work. I'm currently about 20 miles from work and hate the commuting.

[adamcollin]

You should consult a local real estate professional. I'm sure you will get a good advice about the market trends in Denver.

[Unclelumpy]

My wife and I have moved primary residences 6 times since 1996.  We've found it to be a great asset builder and we follow a few simple rules:  First, you must be well versed in the local market.  Don't take someone's word for it, research neighborhoods and track sales price, time on the market, cost of repairs if hiring subcontractors, etc.  The more research the easier the decision.  Secondly, bank your profits.  Every home/deal must stand on its own merits.  We've seen too many instances people rolling their profits into more and more expensive houses than they needed, and ended up in foreclosure during the market downturn.  Thirdly,  never buy a home you wouldn't be comfortable living in for the next 10 years.  That includes livability and affordability.  Real estate markets are volatile and "needing" to sell a house in two years is never a good place to be.  Lastly, know where you're going.  Before selling your house make sure there are enough suitable alternatives out there so you don't have to make a desperation buy.  Good luck, hope this helps.

[dess1313]

Buying and flipping can be good or bad.  just depends on your skill, ability to learn, and who you have to help you.  I was able to buy during the 2008/9 crash and got a good deal on a place.  My intentions were to live there for 5+ years and reno just a little.  A little became a lot.  It was an awful ugly duckling and needed work mostly cosmetic but everywhere.  bought for $120k, put $28k in, worth about $190-200k now.  Was it worth it?  Yes.  Did i end up burnt out from doing mostly solo renos?  Yes.  Would i do this big of a project again mostly solo?  No.  If i did try to look for a good value buy it would be hard now because of the buyers market.  finding the right place in the right location for the right price is sometimes the hardest part of any house purchase

[storx]

Im not sure if this would benefit you in any way since you stated you have 2 kids, but just ideas for the future.. Im no longer in the military, but when i was in we were re-stationed like every 1.5-2yrs, it became annoying to move so often in regards to packing up everything and renting a truck or having the government do it... things always went missing or became broke and it annoyed us a lot, so we bought a 31.5ft 5th wheel towable RV that was like 2 years old, 1 owner but barely had any wear as they bought it with intentions and only used it a handful of times, so we picked it up for $10,000. You may ask why we went the 5th wheel route, well this is purely on the fact that at the time of purchase a 31.5ft size RV w/motor was in the $50,000+ range unless we bought really old models... When we were given orders to move, it was simple and easy since all we had to do was secure some things, unhook yourself and roll out, but we needed a truck to move the trailer... the great thing about this is there are so many places now that support RV's now, so we would just rent a truck w/5th wheel and move it ourself.. Hertz and Pennske both have 5th wheel 1 ton pickups for rent, the last time i rented a truck to move it was like $80-100/day to rent....sometimes i was able to get specials with upgrade coupons going from a 3/4ton price to a 1ton price...

Anyways, we always moved to the area staying in a RV park tell we found a house that was a fixer upper with profit margin available with 1 key requirement, that the driveway was big enough to store an RV, Then we would move the RV from the park to house and work on it while we lived in the RV, we would use the houses water and electricity and such during the fix and write all of it off as business expense on our taxes through our CPA because we were not actually LIVING in the houses during remodeling. we did this to 7 houses over the years and made very nice bank from flipping them this way...after 8 years of owning that 5th wheel and using it.. we were able to sell it for $8,000 to its next owner...

[Megma]

My aunt and uncle did this all through the 90s in Colorado Springs, it was seeing a lot of growth then not sure about now. They would buy the most out of date house they could find (different ugly carpet in every room, 1970s kitchen, etc) and my uncle would remodel it over a few years while the lived there. He also owned a dry-walling company, so he could do the majority of the work or have his staff help out if needed. It worked out well for them. They would often buy either in old neighborhoods that were established an very desirable and find the one out of date home or buy on the outskirts where the growth was headed.

But keep in mind, this means you will be moving ever 2-3 years. Toward the end, my aunt was like "hell no, I'm not moving again" I think that was house #4 or 5. They are now both retired but that has more to do with owning a drywall company during the peak of Colorado's building boom I suspect.

[waffle]

Thanks for the input so far. Last year I moved 4 times (I work in the construction industry), but I should be staying in the Denver area for the foreseeable future though so moving once every 2-3 years doesn't sound bad right now. The work is coming along slowly but surely. we are redoing the kitchen right now and I really enjoy the work.

[Ricky]

Thanks for the input so far. Last year I moved 4 times (I work in the construction industry), but I should be staying in the Denver area for the foreseeable future though so moving once every 2-3 years doesn't sound bad right now. The work is coming along slowly but surely. we are redoing the kitchen right now and I really enjoy the work.

That's all that matters (that you enjoy it). More power to you! Not sure I could ever handle that.

[Bearded Man]

Wait to see how this one goes.

[waffle]

The kitchen is now hopefully nearing completion. It's definitely been more stressful on the family than any other room that we've done so far. There is enough space in the house that we have spares of most rooms, or we can shuffle kids around when redoing bedrooms, but there is no second kitchen so there has been more urgency to get it done than the other projects, but hopefully it will be wrapped up in a week or two.