Everyone needs a place to live. Whether it is a house, an apartment, or something else, shelter is a basic need that must be met. One of the most basic investment strategies that can build a lot of wealth over the years is to make your homes also serve as your investments. Home purchases are most often driven and decided by emotional factors, such as the feeling we get when we see the home and our imagining ourselves living in the home. Financial considerations are often secondary to other things that drive our decisions. It is not common for the average person looking to buy a house to be looking at it also from an investment point of view. If you improve your home and then sell it after two years you can avoid capital gains tax while reaping a good profit, which you can then use to upgrade to a larger home. This can be repeated over and over again for as long as you wish. One thing is certain: changing your perspective about home purchasing from emotional factors towards looking at it as an investment will cause your home search to go in an entirely new direction! Let’s look at the drawbacks first and then the benefits.
1. The house which has the best investment prospects will probably not be as appealing to you as your dream house would be. For one thing, it’s probably not going to already be renovated and sold with all of the fanciest materials and newest appliances. You’re not setting out to make someone else money on their flip, you are out to make money on your own flip. And this usually means choosing a property that needs some work.
2. You will likely have work to do in order to renovate the home and improve its value. If you are not someone who enjoys working and home improvement, this strategy may not be right for you.
3. You will need to sell and buy your home as part of the strategy. While you could just buy one home, fix the home and stay in it for 30 years before selling for a profit, it will be much more profitable if you repeat the strategy every two years. Some (probably most) people don’t enjoy moving and would like to stay in their current home for many years.
4. It is possible to lose money. If you buy during a seller’s market (high prices) and sell during a buyer’s market (lower prices) you may have a difficult time recouping your money or even take a loss. You may want to consider waiting through the dips and buy/sell more frequently during the rising periods of housing prices.
5. You need to have some money to get started. Most banks require at least 3.5% down for an FHA loan. You will also want to have some reserves to work on your home, although a little ingenuity and lot of will can go a long way in renovating a home on a smaller budget.
1. You can build wealth relatively quickly. Of course, a two year turnaround isn’t lightning fast, but it can build wealth faster than the stock market or increases in salary if you are employed. It is well known that more people have become millionaires through real estate than any other form of investment. That should be enough to get your attention!
2. You need to live in a home anyway. Why not pack a double wallop and make a substantial amount of money while you’re at it?
3. It can be a lot of fun to work on, and improve, a home. You can get a huge sense of accomplishment by turning an unsightly home into an inviting home with a lot of curb appeal.
4. As you build wealth through this strategy, you will be capable of affording more expensive homes. Each home will be a stepping stone to the next.
5. You will also learn a great deal about home repair and estimating which will help you as you move forward with this strategy. This knowledge and experience may also help you if you ever plan to flip other homes as a business. This strategy can be a great way for you to get your feet wet when you don’t have the time constraints that go hand-in-hand with a straight-up flip. By the time you’ve bought and sold 2 or 3 homes you will have developed some sense of cost and time estimates, which can then be used in a flipping business if you so desired.
For the average person, the benefits of this strategy will outweigh the drawbacks. Eventually, most people will probably want to settle down in a particular home, and many circumstances of life can be factors in this. However, if you use this lifestyle flipping strategy for as long as you are willing and able to, it will serve you well.