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

Gary Nelson · Answer

Hello @Steve Chaparro!

This strategy is a great way to build wealth, but living through renovations can be rough if you don’t plan it right. The best flips have strong bones and just need cosmetic updates—think kitchens, bathrooms, and flooring. You don’t want to get stuck in a money pit that drags out the timeline or eats into your profits.

Two years is great for avoiding capital gains, but life happens, so always have a backup plan. If the market shifts, renting it out for a year or two might be the smarter move. And if you really want to maximize returns, focus on properties in appreciating areas where demand is strong.

I might be a little biased, but Branson is an ideal market for this—affordable homes, steady appreciation, and the option to flip, hold as a long-term rental, or even turn it into an STR. Just make sure you budget for the unexpected because real estate loves surprises.

Corby Goade · Answer

This is a great strategy for building capital, don't get me wrong, but it's not really investing. Flipping is a job and you only make money if you are actively working on a flip.

Long term buy and hold is where it's at. As much as I love this strategy, I'd be re-deploying all of the proceeds in to long term buy and hold investments and start building a tax free nest egg for my family for generations to come.

Just cashing out and buying a boat might sound like more fun, but it doesn't create wealth like holding property does.

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.

Rick Albert · Answer

There is a couple of things to think about (I've house hacked two fixers here in LA and leveraged to build my portfolio):

1. James did this strategy over the years. He also benefited from mass appreciation, lower construction costs, and low interest rates. It was a very different climate. I'm not saying he isn't good at what he does (he continues to have a great track record), but it's almost like a different world today.

2. I agree with what others are saying. Two years isn't quite enough time anymore unless you get a stellar deal. Not to say they aren't out there, but if you don't have the resources or experience, it can be tricky.

3. Talk to your CPA. Just because you lived in the property two of the last five years, you will have to pay back depreciation, etc. when you sell if it was a rental. To be fair, it is a better strategy because you may make it up in loan buy down and appreciation.

4. You can likely make it work in any market. The advantage of higher priced markets is that you have bigger loan buy down and bigger dollar appreciation (3% on a $1M asset versus 3% on a $100K asset).

5. If you are constantly selling properties to scale up, how does that benefit you? Wealth is built in passive, long term income, not "quick" flips. James also has rental properties, etc.

Steve Chaparro · Answer

Thanks, @Rick Albert. I am soaking all of these thoughts in. I'll respond to all this feedback collectively.

Steve Chaparro · Answer

Thank you, @Gary Nelson. These are great thoughts that I will think about seriously.

Steve Chaparro · Answer

Thanks, Corby. This is so great. Great insights to consider.

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

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