The same investing rules apply to buying a home because a home is an investment. Just because you plan to live in the home as a primary residence doesn’t make it any less of an investment. In fact, I believe that more families need to approach homeownership the same way a real estate investor would. Because guess what? Homeowners are real estate investors!
Kayla and I bought and sold our first home in just 2-years and pocketed about $32k in cash by utilizing a live-in flip real estate strategy. This was a major boon to our household finances and helped us geoarbitrage our family across the country.
The live-in flip strategy is a great way to ensure that you are buying your house from a position of strength, control, and separating it from your emotions. If done properly, a live-in flip can be a great way to get into the real estate market.
Our Financial Situation
Back in 2018, Kayla and I were eager to enter the housing market. We had been living in an apartment for years while we completed our bachelor’s degrees. At the time, I was working full-time as a business development rep (BDR) making cold calls for a living. That year, I made just $42,000.
Kayla was working part-time as a daycare director and taking care of our 3 boys and making about $1,000 a month. We didn’t qualify for much in our local area and houses did not stay on the market for long.
Planning Our Exit Before Buying
Kayla and I had an exit strategy before buying our first home. Like with any investment, it is prudent to not only do your due diligence but to plan your potential profit upon exiting the investment.
Going into it, we knew we were not going to spend more than a couple of years in this first home. We decided Kayla would start working full time and I received two promotions in the first year of homeownership. Our income went from about $50,000 in 2018 to $150,000 presently.
Our plan was to get into the housing market and cut our teeth on an older, affordable home. We planned on being in the home for 3-5 years, then selling it to size-up either locally or out of state. The only way this would have been possible is if we were certain we could sell the house, cover the cost to sell, and still earn a profit.
Understanding the Local Market
We lived in a city of about 200,000 people and it’s divided into 3 individual cities by 3 rivers. Each of the three cities varies greatly in regard to housing prices, schools, and amenities.
Kayla and I grew up here so we had first-hand knowledge of each city. This provided key insight into our decision-making process that would translate into an intelligent first home purchase.
We chose a very specific neighborhood in our city and it happened to be just around the block from where we both grew up. We chose it for these reasons:
Proximity to highly rated schools
Proximity to amenities (Retail, Groceries, Food, Entertainment)
History of strong price appreciation including during the Great Recession
Price appreciation compared to the other local cities/neighborhoods
Neighborhood sentiment among friends, family, co-workers
Low crime rate compared to other local cities/neighborhoods
We were confident that prices in this neighborhood would continue to increase. Partially because of the geographic nature of the neighborhood. There is not much room for further expansion and the neighborhood is a very popular place for parents to raise their children.
Knowing there would likely be another family like us years later, we had confidence that there would be a buyer when it came time to sell.
We were both habitual Zillow lurkers for years prior to buying our first house. We had a really good grasp of what the market was doing and how fast houses were selling (within hours of listing).
VA Home Loan
My VA Home Loan benefit played a major role in our ability to get in and out of our house and maximize our profit. The VA Home loan is special because it allows the borrower (us) to get a mortgage with zero money down.
While not always advisable, the $0 down payment was critical in getting us into a house as recent college graduates with three kids. The VA loan has many other benefits like; reduced closing costs, no mortgage insurance requirement, additional fees waived if you have a service-connected disability, and many more.
The house was built in 1997 and everything was original. From the water heater to the HVAC, Roof, and kitchen appliances. It was in decent enough shape to pass a VA home inspection which is supposedly more strict but I disagree after the experience we had with our home inspector.
During our short time in the home we:
Painted the walls
Replaced the kitchen appliances
Replaced the kitchen sink and faucet
Painted the countertops
Added a tile backsplash
Painted the cabinets
Added garden boxes
Tore down an old shed
Brough a giant elm tree back from the brink of death (beetles)
Cut down a Russian olive tree
Replaced the outdoor light fixtures
Removed mixed rock and added woodchips around the foundation
We didn’t do anything revolutionary to the house to warrant a higher price point, but rather made updates that would resonate with other young people looking to buy their first house. There was much more we had planned to do had we lived in the house longer. Consider the flooring in the images below (yuck!).
Altogether, we estimate that we spent about $3,000 on home upgrades. Most of that cost was in the appliances and landscaping.
Kitchen Before and After
The primary reason we made out like bandits on our live-in flip was due to market appreciation. We bought the house in a great neighborhood during one of the biggest economic expansion in history. Just 10-years prior, houses in this neighborhood were selling for $150k and we bought ours for $240k.
In just 2-years, our realtor suggested we price the home at $290k and we had competing offers within hours. It is likely that we could have priced our 1,450 square foot house for over $300k and still found a buyer.
In just 24-months, we had $50,000 in equity before sellers fees, realtor commissions, etc… Should I have sold the house myself? Probably, but we were coordinating the sale with a purchase 2,000 miles away and had about a 5-day grace period to make it happen. Leveraging the book of business my realtor friend has was essential to making sure our plan to geoarbitrage stayed on track.
At the end of the transaction, we profited about $32k from the sale of our first home in just 2-years! We didn’t do things perfectly and we learned a lot. Here are 15 lessons we learned from owning this house.
To us, our first home was a launching off point. We never intended to live in it long term and that was at the forefront of our planning. Had we bought a house that depreciated or remained flat in value, we would have been “stuck” in the house until we had enough equity to get out from under it.
If you know Kayla and me, we are all about options and the freedom of choice. We bought our house intelligently in a neighborhood that gave us a high level of confidence that the price would appreciate quickly.