I'm considering employing the Live-In Flip strategy over the next 10 years - Advice?

Question

I last owned a home in 2010 and have been renting since then. Frankly, with prices in the LA area, I have been happy to rent because the cost of renting is much lower than buying. Yeah, I get it, I don't get the write offs, but it has made sense so far.

Now, I need the tax benefits of real estate investment.

So, I am considering employing the Live-In Flip strategy. While still renting, I want to buy my first distressed property, rehab it, then move into it for 2 years.

Just before the two years is over, I want to level up by buying the next distressed property then rehab it. Once it's done, I will sell my current primary, take the tax exclusion for selling my primary, and then move into the second property.

Rinse and repeat.

My plan is to do this five times, each time leveling up. This approach seems to be validated by this video by James Dainard:

So, after 10-11 years, I can just decide to stop and live in the 5th property, or... I can move on to another 10 year cycle.

Who else has done this? Any lessons learned?

My plan is to do this five times, each time leveling up. This approach seems to be validated by this video by James Dainard:

So, after 10-11 years, I can just decide to stop and live in the 5th property, or... I can move on to another 10 year cycle.Who else has done this? Any lessons learned?

Dan H. · Answer

I want to preface I am not a financial advisor, CPA, tax advisor, etc.  Check everything with your trusted expert.

I have some questions/comments for you to ponder (no need to answer on BP, just think if they apply to you):

- is your unit that you currently live in rent controlled?  How much is it below market rent?

- how much cheaper is it to rent than to live in a purchased property?  It is my belief that Los Angeles has large cash flow negative when using accurate expense estimates.  How negative is the property's cash flow if using the 50% expense rule.  Note at purchase with typical rent to value ratio, the property tax alone is ~20% of rent.

- Is the primary reason for the live in flip 2 year plan to not pay the gains?  If so, have you considered 1031 exchange?

- What happens if at 2 years for some reason it does not make sense to sell?  What could cause such a situation?  Believe it or not the two conditions most likely to result in this is exact opposites.  One is that RE prices have fallen to where the profit is poor.  The other is prices have risen so much with an associated increase in rents that the prop 13 discount is large.

- Accelerated depreciation is not available on an OO.  If you want the quickest tax write off, it is tough to beat.  My Net Income Tax Savings using Bonus Depreciation for accelerated depreciation studies competed in 2024 was $256K.

- Your plan has constraint on scaling that does not exist with other options.  If a rehab takes 4 months but you have to wait 2 years, that impacts the ability to scale.  In addition, you can only OO one property at a time as a primary.  That also impacts ability to scale.

Discuss your plan with your trusted financial/tax advisor.  There are a lot of options to consider especially if write offs is a primary motivation.  Cost segregation, 1031, 2 of 5, standard depreciation, RE professional, STR "loophole", stepped up basis, prop 13 in CA, etc.

Good luck

Steve Chaparro · Answer

Thanks, Roland.

Steve Chaparro · Answer

Hey Roland,

Appreciate the insight! The ARV minus repairs approach is exactly what I’m targeting. My plan is to buy distressed at around 70-80% of ARV, force appreciation through renovation, and hold for at least two years to maximize the tax-free gain.

For my first target, I’m looking at:

• Purchase Price: ~$600K for a distressed 2/1, ~1,000 sq. ft. home with a 2 car garage
• Renovation Budget: ~$200K
• Final Product: Expand to 3/2, ~1,500 sq. ft. + convert garage into a 400 sq. ft. 1/1 ADU
• Projected ARV: ~$1M+
• Appreciation Assumption: ~4% per year

Financing-wise, I’m leaning towards a construction to perm loan. FHA/VA loans could be useful for some, but in LA’s price range, the loan limits are tight. Hard money’s an option if the right deal comes along, but I’d prefer to keep holding costs down.

And yeah—reno chaos is a given. The key is keeping timelines tight and contingencies built in. From your experience, what’s been the biggest challenge in executing this strategy?

-Steve

Matthew Becker · Answer

I have done it, and many others have.  Not much to it.   It is 2 out of the last 5 years, so you can rent it out for a few years, which will get you more appreciation.  It all depends on your financial situation and investment goals.

"Now, I need the tax benefits of real estate investment."  What do you mean by this statement?

There are a lot more questions to ask before answering your question.

It will cost you more money to buy than to rent.  Is it $5K a month or $1K more?  What does the appreciation look like in the area you want to live?  Are you going to have an adu?  How much do you want to spend on a house?  You will lose money if you get a 3% appreciation over 2 years and sell it.  If you bank on 5%, you will make some but not a ton.  If you paid $5K a month more, you will make very little or lose money.   I think 5% is very aggressive and would never bank it; 3% is safe, and if it does better, then great.   You can't look back at 2019 to 2023 as a regular time in the market.  Things went 40 to 100 percent.  That massive mistake by the federal government will impoverish a generation of young people.

You might want to invest in another place and rent in LA, depending on your financial situation.  It would take a 30-minute phone call, or you would need to give a lot more info for me to advise you properly.

Dan H. · Answer

My market is similar to LA that the initial cash flow is terrible, however the appeciation and rent growth have been outstanding.  In addition, the value added via virtually any value add it outstanding.

Appreciation: my worst appreciating property has appreciated $2700/month over its long hold.  This is likely worse than the worse of at least 75% of your local RE investors.  Go to an RE meetup and have a couple of the RE investors calculate their monthly appreciation, I suspect virtually all will have done better.  I have 2, maybe 3, properties that have appreciated over $10K a month over the hold.  This likely beats far more than 75% of non-commercial properties (likely over 95%).  You can realistically expect long term monthly appreciation between these 2 numbers.

Cash flow: rent growth is far more important for long term cash flow than the initial cash flow.  What does this mean?  It means that the cash flow can be outstanding for a long term hold in our markets.  Many of my properties have rent ratios over 2% of purchase price, one has rent ratio over 4% of purchase price.  Imagine what the cash flow could be.  I will address why I used the words "can be" near the end of the post.

Value add: I completed 3 rehabs in the last year but the one I will use to make my point is a property in a very high cost area.  The average PSF is over $2K.  The comps showed adding a half bathroom out of existing footage added $50K of value.  I am a bit skeptical, but even at 80% that would be $40K value add for a toilet and vanity.  Crazy.

Tax benefits: I already mentioned the value of the cost segragations I did last year (2 properties).

Now to address the "traditional" reality.  The real high cash flow is typically not achieved due to an extraction of value.  I am unsure if I have ever had a loan more than 5 years and am sure I have never had a loan last 10 years.  I have extracted a lot of money that has allowed me to scale.  With the increase in rates that started in Q2 of 2022, there is a chance that I will have some loans that are going to go over 5 years.  BTW I refinanced everything between Dec 2021 and Dec 2022.  When the fed states they are going to raise rates, it is generally a good idea to believe them.  My cash flow using a 40% expense ratio is a modest $19.3k/month (modest for the amount of RE holding).  Imagine what my cash flow could be if I had not regularly extracted value.

Good luck

Steve Chaparro · Answer

Hey Dan, I really appreciate your insights—especially around cost structure, tax implications, and scaling. You bring up some great questions that I’ve been weighing as I refine my approach.

I’m working on a two-pronged strategy where I use the Live-In Flip/Live-In Rent model to capture tax-free appreciation on primary residences, while also building long-term cash flow and equity through BRRRR and Build-to-Rent projects.

Your point about scaling constraints is spot on. The live-in flip model naturally slows the pace of acquisitions, so I’m balancing that with a parallel strategy: generating cash flow from an ATM business to fund BRRRR investments, which will later transition into Build-to-Rent.

On the tax side, I’ve been considering 1031s, cost segregation, and STR tax advantages to optimize write-offs. I see the trade-offs between appreciation and depreciation benefits, so I’m evaluating whether holding more rentals makes sense alongside the live-in flip model.

Would love to hear how you’ve balanced appreciation vs. cash flow in your experience—have you leaned toward flipping, holding, or a mix of both?

Roland S. · Answer

@Steve Chaparro Love the detailed plan—your numbers look solid, and targeting 70-80% of ARV with a $600K purchase and $200K rehab to hit a $1M+ ARV is ambitious but achievable in LA if the market holds. Expanding to 3/2 + an ADU is a smart move for forced appreciation and rental income potential, especially with 4% annual growth baked in.The construction-to-perm loan sounds like a great fit for managing costs and timelines, especially with LA’s high price points outpacing FHA/VA limits. Hard money’s fast but pricey, so I’d reserve it for deals where speed trumps cost. Just watch those holding costs—LA’s taxes and insurance can eat into margins if timelines slip.Biggest challenge from my experience? Managing unexpected repair costs and delays. Even with tight timelines, you’ll hit surprises (permits, hidden structural issues, or contractor slowdowns). Build in a 10-15% buffer for repairs and pad your schedule by 2-4 weeks. Also, living through the reno can test your patience—keep your endgame (tax-free gain + equity) in mind!Curious—how are you sourcing contractors to keep quality high and costs in check? That’s often the make-or-break factor in LA.

Steve Chaparro · Answer

Thanks, Matthew. I just sent you a direct message with my responses to your questions. Hopefully it clearly explains my thinking at the moment.

I'm considering employing the Live-In Flip strategy over the next 10 years - Advice?

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