Do you want to make $250,000 and keep all of it tax free? If you are married that number goes all the way up to $500,000. You can keep all that money and pay NO taxes! That isn't a typo. Obviously this will take some work but here is how you can do it!
The way to get all this money tax free is to successfully complete a live in flip. The way this works is the Internal Revenue Service (IRS) has implemented Section 121 - Exclusion of gain from sale of principal residence . If you want to read the full 16 pages document from the IRS you can here.
The general jist is you can sell a property you lived in for 2 out of the past 5 years and keep up to $250,000 of the profits if you are single or $500,000 if you are married.
The two years do not need to be consecutive either. You can live in it for one year, live somewhere else for three years and then come back and live in the property for a year and that works also. Doing all of that somehow qualifies as a primary residence. Whatever works!
How To Complete A Live In Flip
You'll need to find and purchase a house that is in rough condition. Understandably this isn't the most ideal situation to be living in but if making this much money was easy everyone would do it!
The wonderful thing about living in the house is that you can put less money down. If you are going to try and do a live in flip you'll want to do either the Federal Housing Administration (FHA) loan where you can put down 3.5% or the conventional 5% down. The reason you'll want to do this is because the less money you put into the deal the more you can get back in a return! And obviously if you have a higher mortgage for 2 years that may not be the concern if you'll make a bunch of money on the back end.
Now that you have your new run down house for a low down payment you'll need to start creating equity and there are three ways to do this.
The first option is to rehab the house. The house you bought is in terrible condition and if you need an example of what it might look like take a peek at my deal 3. That house is run down and just needs to be updated but the bones are good which makes it ideal. Other people buy homes that have been exposed to damage like a fire or flooding to create wealth but in this instance of you living it in if you want bank financing and it'll be hard to get that if it is in that bad of condition.
You can obviously do the work yourself or hire it out. This goes without saying but if you do the work yourself it'll be cheaper for you which means a larger profit margin.
The second option is to create more livable space. This can be turning a den or an office into another bedroom. You can turn a basement into a bedroom and a bath. The reason you'll want to do this is because single family houses are based of comparables and typically the higher the bedroom count the more you'll be able to sell it for. Things to look for may be a two bedroom house that is over 1,000 sq ft might have space for an extra bedroom. Is there a carport that you can inclose to add a bedroom. How about an extra 10 feet between the current house and the fence. You'll need to be creative to see and create value that is not currently there. My deal 2 is a good example of this. The house not only has a den but it also has a basement that I can easily add a bedroom/living space and a bathroom.
The third option is combine the first two steps and create extra livable space while rehabbing the entire property. This will be your best option to create the most amount of wealth!
The live in flip is a great way to get into a property and create a lot of tax free money. This will require you to either fix up a property or hire it out but is still a great option!
HELLO AND WELCOME!
I'm Jake, a dude interested in personal finance and travel creating the life I choose.
In 5 years I went from living in a basement with Craigslist roommates to paying off 90k of debt, backpacking 3 continents, getting a house for myself and 5 rental units.
Read my story in the about me section.
All photos on the blog are from my travels
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