Is this plan a good one?

Question

I am currently in a situation where I could do this and wanted to see if there are any flaws or if its a terrible idea.

I am looking to buy a fix and flip property. It will be my first and I will require investors. I am looking for a house at the right price knowing this is my first flip and will likely take more time than expected.

My plan is to live in the house I plan to flip and pay the investors back as I live there. Essentially me paying a mortgage with the intent to sell as soon as it is complete. This way, my investors would see monthly return right away, I would not see a change in personal budget as it would replace the month to month rent I am paying at my current house. I would also be at the house every day which would make my work easier and more frequent.

I would move in with minimalistic items as to not interfere with the rehab.

My profession is 80% project management, so I would manage my project doing some work myself and the rest would be contracted work.

Is this a bad plan?

Are there flaws or potential hang ups?

Advice?

Michael Woodward · Answer

@Patrick Hensley...  I think it's always a great idea to live in your investment/flip if you can.  It's the classic house-hack that @Joshua Dorkin and @Brandon Turner talk about all the time.  I've done them myself a few times.  I promised my wife after the last one that I wouldn't do that to her again because she was getting frustrated that she couldn't "nest".

In my experience, this scenario has many advantages with bank loans, taxes, etc.  I'm not a tax professional or mortgage lender so you should consult some but I've seen that primary residences have better terms and conditions than investment loans.

As far as whether or not you can live in it, you will obviously have some interruptions to "normal" life.  You might be taking a shower in the kitchen sink or using the port-a-potty outside for a while but if you can roll with it, you can save (or make) a lot of money with this strategy.

Good luck!

Gareth Fisher · Answer

Do an FHA 203k pay yourself to do the work and your holding costs will pay the mortgage. So you won't have any mortgage to pay.  However I would advise living on site is super stressful and would avoid it if possible.   Investors are more for higher risk higher returns or all cash deals.  When possible use the bank they will be cheaper.  Yes this model is very feasible, if planned with care.  Start looking at properties now it will take a while to learn your local markets, a good agent should be able to guide u.

Troy Southerland · Answer

I like @Will Flores' idea a lot. You are basically paying for the mortgage yourself but just need some extra money to fix up the property. You can go solo if you go with Will's suggestion.

Don't pay rent, pay the mortgage instead and keep the property for yourself.

Is the property in condition to rent at all? You could rent out a part of it to help raise the renovation money.

Mike Hanneman · Answer

You can use a 203K loan on a personal home that needs work.

The problem with your plan when using private money is, unless it's really private money, meaning friends, relatives, people you know, you won't be able to live in the place.

Hard money lenders will not lend to someone wanting to live in the place they are lending on. The reason is, it makes it way more difficult for them to foreclose on the property should they have to.

Patrick Hensley · Answer

Thanks for the resposes!

Yeah an FHA loan is one option for me and will likely go that route. Investors was too specific of a term when I meant to be generic in saying repaying my loan (wherever it comes from).

I was more or less asking if anyone has done this and run into issue with the rehab itself that would make me living in the home not possible. Unforeseen tax issues because its a primary residence (though I think it really helps me more than hurts). unexpected reasons I would have to be out of the house for extended periods of time.

I am specifically looking for a house that needs works, because, in my area these are very undervalued from what I have seen. I will see a big REI if I get the right place.

The problem with FHA loans and other bank loans, they require inspections. I will likely only buy a house that I can get an inspection done on (as it will be my first), but sometimes screaming deals come across cash only, as is. If I can get in an look at the foundation and roof on one of these, I will need private investors.

I want to take advantage of these while they are still hot and undervalued. I saw a 4 bed 3 bath 2300sq ft house in a nice area sell for $150k cash and rehabbed and flipped in 4 months for $340k. I know this because I was going to make this house my first attempt, but couldnt come up with the money in time.

Jennifer McElliott · Answer

Is this plan created b/c you can't get an FHA loan which would only require 3.5% down?  Those loans would have lower interest rates than a private lender as well.  If not FHA and you're in a more rural area I believe the USDA one is also a low money down option.  Have you checked out Brandon's low and no money down strategies?

One other option that my lender was telling me about - and was touting as better than the FHA loan requires you to go to some new lender class (even though I wasn't a first time borrower), I can't recall the name of that loan, but if you're interested I can find out more for you.

Anthony Angotti · Answer

@Patrick Hensley,

If you are living there why all the other investors? If anything just get a private lender and pay them like you'd pay the bank. Unless that is what you're describing above.

Keep all the profits for yourself. Just house hack that one.

Is this plan a good one?

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