Strategy 72 of 107 · new for the five-year plan
Live-in improve and sell, every two years, tax-free gain each time
What it is
Buy a home that needs cosmetic work, live in it, and improve it while you live there.
Steps
- Buy a home that needs cosmetic work, live in it, and improve it while you live there.
- After at least two years, sell; the gain up to $250,000 ($500,000 married) can be excluded.
- Put the gain into a smaller loan, or no loan, on the next one. Repeat.
Repeat: Every two years or more.
Measure: Gain after costs at each sale.
Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Markets can fall; renovation costs run over.
- Moving every two years is hard on a family.
- The exclusion can be used once every two years.
Who it fits
Married couples, Newlyweds, Single, Business owners, No college degree, No high school diploma
Needs
Could move out or relocate for a few years
How predictable
Depends on markets or variable rates
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (married couples). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: buy a home that needs cosmetic work, live in it, and improve it while you live there.
Suppose it brings a one-time $100,000 on principal. The loan would be paid off in 13 years 1 month instead of 30 years, saving about $285,309 in interest. To finish in five years, they would still need about $2,017 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Two live-in flips, then no mortgage: Two sales two years apart, each gain excluded up to the limit, the last purchase made for cash or close to it.
Sources and more information
Where to get help
Related strategies
- 71. Sell in a high-cost area and buy for cash somewhere less expensive
- 73. Sell a rental property and pay off the home
- 74. Sell all or part of a business
- 75. Sell vested employer shares you already own
- 76. Surrender a policy you no longer need, for its surrender value
- 67. Move idle savings above the emergency fund to principal