Carl and Mindy Jensen estimate that they’ve profited $1 million between their seven “live-in flips.”
A live-in flip, unlike a traditional flip, is when you rehab the home to increase its market value while living there.
The Colorado-based couple prefers this strategy because it eliminates some of the risk that comes with traditional flipping.
“The beauty of this strategy is you need a place to live,” Carl told Business Insider. “You’d be in a much riskier situation if you had bought a separate house that you need to flip as soon as possible because you’re just pouring money into it, whereas we’re just paying the mortgage on our primary house.”
There are sacrifices that come with live-in flipping — since they’re rehabbing the home while living there, they’re essentially living in a construction zone — but it’s a smart way to turn your primary home into an investment, especially if you have more time than capital.
The Jensens, who are generally shifting to more passive real estate investing strategies, shared the four tactics they’ve used over the past couple of decades to flip homes for a profit.
1. Wait for the right deal: ‘You make your money when you buy’
A key to the Jensens’ success has been waiting for a great deal rather than jumping on an OK deal.
“You make your money when you buy,” said Mindy. “You don’t want to get into a bidding war and overpay by 10, 20, $30,000. That could be your whole profit. There’s always another house, so definitely don’t fall in love with something.”
It took about two years to find their current live-in flip, added Carl: “We probably saw 30 or 40 houses before we landed on it — before we found the right deal.”
The “right deal” depends on the investor. For the Jensens, “I’d like to get such a good deal on the house that perhaps I could sell in a year and make money off it even if we didn’t do anything to it,” said Carl.
2. Buy the ‘dumpy house in the great neighborhood’
Flipping properties is all about adding value — and it’s difficult to do that if you buy the prettiest house on the block.
“One thing that we have always focused on is finding that dumpy house in the great neighborhood,” Mindy said. Chances are, it’ll be overlooked by other homebuyers and you can score a deal.
That said, they’re not looking to take on houses that have major structural issues, especially since they do most of the renovations themselves. Their sweet spot is a home that’s 30 to 50 years old and in its original state; it’ll likely be dated and have room for cosmetic improvements, but the mechanical systems and structure will be more modern.
The Jensens have done seven “live-in flips.”
Carl Jensen
“We’re not doing big, big jobs. You don’t want to be moving walls,” said Carl. They’re tackling renovations like flooring, swapping out a toilet, and painting cabinets. “It’s all superficial work. It’s making the ugly house look pretty.”
Or, it’s making an undesirable home more desirable. For example, the Jensens’ current live-in flip has a pool. While that might be something buyers in Flordia are looking for, “pools are undesirable in Colorado,” explained Carl. “So no one wanted this house, but it’s in a great neighborhood, and it would be very easy to get rid of the pool.”
Keep in mind the median home price in your market during your search process, added Mindy: “If you have a $500,000 neighborhood, you don’t want to buy a $500,000 house and then turn it into a $750,000 house because people who are buying $750,000 houses want to live in a $750,000 neighborhood. Having the most expensive house in the neighborhood makes it difficult to sell.”
3. Know your rehab costs and DIY to improve your bottom line
It’s essential to know what your rehab will cost before buying the property so you have a good idea of your expected return.
Of course, experience helps now that they’re on their eighth flip. “We can ballpark based on our past experiences if it’s going to be a 50, 75, or $100,000 rehab,” Mindy said. As a rookie flipper, however, it’s smart to overestimate the cost and timeline.
The Jensens are DIY home flippers.
Carl and Mindy Jensen
When it comes time to actually renovate the property, you have two choices: “You could hire contractors — and you better have some great connections, be pretty confident in them, and be sure of what it’s going to cost — or you could do what we did, and that’s doing almost all of the work itself,” said Carl.
If you buy a home with a good foundation, the renovations will be time-consuming but not necessarily hard.
“Anyone can learn how to do flooring. It’s not that hard to swap out a toilet,” he said. “You can go on YouTube and figure that out in a couple of minutes.”
4. Do a ‘live-in flip’ to avoid capital gains tax
The Jensens prefer ‘live-in flips’ to traditional flips because it lowers their risk.
But it also allows them to sidestep capital gains tax on the sale of their properties, thanks to an IRS rule known as the Section 121 Exclusion. This lets taxpayers exclude up to $250,000 ($500,000 for a couple filing jointly) of the gain from the sale if they’ve used the home as a primary residence for at least two of the five years preceding the sale.
Since the Jensens live in the properties they flip, they can capitalize on the tax benefit.
