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A guide for selecting, financing, and renovating homes

Recipe for Renovation


About

These are my personal experiences, opinions, and design style preferences which are not written for the purpose of duplication, rather inspiration.

MK

Recipe For Renovation

How I select, buy, and renovate fixer-uppers and sell them for profit
without paying capital gains tax:

A pre-qualification
from a mortgage lender.

Step 1
I select a 30 year conventional loan term and the minimum down payment. These options give me the lowest possible monthly payment and least out of pocket cash required to close. In turn, I am able to budget renovation expenses better than if I had a shorter loan term with a higher monthly payment or a higher down payment draining my savings.
Each home is my primary home which means I qualify for better loan terms than if they were an investment or 2nd home.
I live in the homes for a multitude of reasons including affordability, time constraints, tax purposes, and more preferable loan terms.

An outdated, unkempt home in an established neighborhood under revitalization.

Step 2
The homes are priced below average market value for the neighborhood due to their condition. My first home, I offered asking price with the condition the roof be replaced. My second home, I offered $25k less than asking price with the justification that the roof needed replaced and the home was literally falling apart. Keep in mind that age and size of a home have a proportional relationship to the cost of the renovation; the older and larger the home, the higher the cost and vise versa.
Location is key. The fixer upper should be in an established (older) and desirable neighborhood with a good school district. The home should be close to amenities like shopping and entertainment (inside a popular city or close to). For ease of success and sale, the home should not be a new build or located in a "drive till you qualify" suburb out in Bangladesh.

No reward without risk.

Step 3
Flipping a home is not for the faint of heart. Depending upon the scale a home renovation, there is serious financial risk involved. Your investment into the renovation will be tied up in the equity of your home until you sell or refinance your loan.
In order to meet the required financial investments for my home renovations, I have leveraged a personal loan from loanDepot, 0% interest for a year on my credit card, and liquid cash.

The Key Ingredients
for any Renovation Recipe.

Step 4
I focus a majority of my efforts on what I call the "Key Ingredients for any Renovation Recipe". Explained in the next section below, or Click Here to go there now.
I taught myself how to do a lot of the work through Google, YouTube, and Pinterest which means I save on labor costs but spend more of my own time.

Home sale & tax/time constraints.

Step 5
I sell my homes after two years and since they are my primary homes during that time, I do not have to pay capital gains tax on my profit.
Additionally, by completing all of my projects over the course of 2 years, I am able to take my time and budget money for each project.
Not paying tax is important for this kind of flip. I could sell a house and walk away before the two years and pay tax on my profit but I never feel like the cost-benefit is worth it at that point (capital gains tax is high!). My full time job isn't flipping properties so by holding onto the property, I don't lose out on anything. Until I am able to build up my profits and get a better return on my investment during that wait time, I will continue to keep the homes for two years.



View Next:
1921 Historic Craftsman - PDX, Oregon

Purchase Price: $325,000
Sale Price: (Reno In Progress) Est. $600,000


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