19. Two Year Flip Strategy (Tax-Free)


  • Living and flipping your primary residence every two years
  • Low to medium risk
  • Tax free when the property is flipped within the 24-month residency period.
  • Initial investment on a home should be at least 60% to 80% below market value
  • Gross margin is around 10% to 15%
  • Expense ratio to gross revenue is around 60% to 70% which is the highest compared to other investments

More: đźŹ Invest in a rental property - Tenants and cashflow included. See how!


The Live-in flip is a strategy that turns your home into a potential asset instead of a liability. The idea is that you flip that home you live in - taking advantage of lucrative tax advantages to maximize property appreciation. The investment works well when buying a house that is worth below market value, rehabbing it and then reselling after a 2 year waiting period. Repeat and rinse by purchasing a home and it could be implemented during your lifetime.

The IRS allows any individual to avoid paying taxes on profits of up to $250,000 to $500,000 (if you’re married and file properties jointly) on the sale of your primary residence if you have lived in it for at least 2 years of stay within a range of 5 years. The 2 years can be anytime within that 5-year period and doesn’t have to be in bulk. All it takes is 24-month residency to qualify and all your appreciation is tax free.

The profit is made from a combination of capital improvements and price appreciation in the market. For instance, an investor can invest in a fixer upper from a good neighborhood. After the initial renovation, the price can potentially appreciate and be at par with its area. In flipping, you want to buy low and sell high. There are four major steps to take note of:

  1. BUY: Look for the ugliest homes or the worst shaped homes in the best neighborhood. They offer the best potential in property appreciation. Make sure that these homes are repairable and salvageable.
  2. REHAB: Spend the next 2 years in implementing fixes and improvements in the property.
  3. RINSE: Re-appraise the property and sell it
  4. REPEAT: Do the process all over again

The process only works when the equivalent investment made on repairing the property is less than what it will sell on the market. One way to do this is to do a walk through with a home contractor before purchasing it so you’ll know what should be repaired and how much it would roughly costs. Ideally, all minor repairs and installation can be done by yourself but you can tap the work of contractors to make it easier. Just ensure that the initial numbers you estimated include 3rd party work.

In normal flipping strategy, you’ll need to close the property as fast as you can to limit the amount of capital tied it. This focus on speed is needed since the longer you hold onto the property, the higher the risk with each passing day costing you money in terms of expenses (i.e. mortgage, property holding taxes, insurance, and maintenance).

Comparatively, the live-in flip has low to medium risk involved since you’ll be living in the property, you will really pay the necessary expenses needed.

Despite this, there are potential risks involved that affect your potential appreciation:

  1. Underestimating and overspending on repairs and expenses. The biggest risk is when you take the purchase price and cost of renovation together, it will be too expensive and may reduce your opportunity to sell.
  2. Hidden damages that are undiscovered during the property acquisition that can result to more expenses
  3. Higher insurance premiums if land is situated in disaster prone areas
  4. Tax laws may change to remove the exemptions and erode your gains

To reduce or avoid the risk of overinvesting, you should be clear on your intended profit margins. When assessing potential purchases, use the cost range in your neighborhood to plan market values with the purchase price and renovation cost. If the improvements require more than just a splash of paint and a few window fixes, then ensure that you get an expert renovator or contractor. At the same time, factor in pest inspections in your due diligence. A clause on your contract that states that you can pull out should any major defects were uncovered in the process of acquiring the property mid-way can help you avoid hidden damages.


This type of property is well suited for flippers who are looking at a short term investment horizon. It also can be done by anyone who wishes to increase their potential gain from the primary residence. To be able to make this investment work, the investor should be familiar with home repairs, contracting and renovations. A knowledge of local real estate taxes can be an advantage.


One important thing - don’t get too emotional with your primary residence. If the numbers aren’t working your favor, just walk away. Look for houses with better appreciation opportunities.

  • AVERAGE INVESTMENT: In the US, the median price of a single family home is around $188,900 depending on where you will be purchasing your property. Usually, east, and west coast homes are more expensive than those in-land states. When looking for a home, it’s best to buy properties that are 60% to 80% below market value.
  • RETURNS: Live-in flips of primary residences can generate a gross margin of about $29,342 per home on average. This is the amount you can potentially gain from the sales prices minus the total cost of acquisition and renovation. In general, gross margin returns are an average of 5% to 10%. But it can go higher depending on market conditions.
  • EXPENSES: Expense ratio to gross revenue is around 60% to 70% which is the highest compared to other investments (50% of gross revenue for apartments, 30% to 40% for mobile parks) since this is technically your home. Usually, home spending are at $1,581 on average.
  • DEPRECIATION: There is little to negligible potential depreciation for a property unless the economy tanks and the market is affected.

For example, let’s say you found a 2 bedroom and 1 bath home in a great neighborhood. In this town, this type of home is worth $120,000 today but you manage to purchase it at $100,000. The renovation costs could be just around $10,000. You made the move.

You hold the property for two years, implementing renovation work and plan to sell it for the right full value of $120,000. Over the course of that time, the market has greatly improved and your home has a value of $130,000. Your final numbers from the investment reflects this:

In this flip deal of just living in your home, you stand to make $15,000 tax free! If you roll that over, you’ll have $25,000 available for your next home purchase (15,000 plus the 10,000 down payment).


What are the benefits of investing in live-in flips?

  1. Tax free and no pressure to sell. The strategy has an amazing tax benefit if you hold on to it for two years or 24 months in the next 5 years. There is no rush or pressure to sell unlike a normal flip. If you achieve the 2-year residency, you can even rent out the property for a year or two if the market is not that great yet.
  2. Cheaper than turnkey properties. Usually, primary residence renovations can be done by yourself and could be cheaper than turnkey investments.
  3. Only 1 loan exposure. Live in flippers can take advantage of appreciation and avoid carrying multiple mortgages if they are not a committed real estate investor.
  4. Opportunity to use owner-occupied mortgages to finance your investment with lower interest rates.

What are the downsides of investing in live-in flips?

  1. Moving every 2 or 3 years. If you want to maximize profits, there is constant need to move around to get the full tax advantage.
  2. Repairing and renovating will take your time. Since you’ll need to fix the house to increase your potential appreciation, expect that you’ll spend more time working on the home especially if you decide to do it yourself.


Live-in flips are great investments for any type of investor. You can do this by buying a home that is below market value, repairing it then selling it. It’s a low risk way of generating short term profits from your primary residence.


  1. Read and learn about home renovations and fixes. By doing the work yourself, you can reduce your renovation cost and increase your returns.
  2. When looking for homes, tell your agent to always look for the low value homes in excellent neighborhoods.
  3. Consult your tax lawyer on how to best take advantage of this tax exemption in your own locality. Municipalities have varying implementing rules and regulations.

More: Invest in a rental property - Tenants and cashflow included. See how!