RPF0_559-Radical_Housing_Ideas_2_of_5_-_Tax-Free_Wealth_By_Fixing_Up_Your_Own_Home
00:00:00.000 | The Hartford Small Business Insurance knows that running a small business is a big-time commitment.
00:00:05.500 | So this holiday season, they're celebrating hard-working small business owners
00:00:09.700 | with a chance to go to I Heart Radio Jingle Ball in Miami on December 16th.
00:00:14.600 | Nominate yourself or another small business owner for a chance to win a trip for two.
00:00:19.200 | Includes airfare, two-night hotel, tickets to the show, plus $1,000 in spending cash.
00:00:25.000 | For official rules and entry information, visit iheartradio.com/smallbusiness.
00:00:30.900 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight,
00:00:35.600 | and encouragement you need to live a rich and meaningful life now
00:00:39.000 | while building a plan for financial freedom in 10 years or less.
00:00:41.800 | My name is Joshua. I am your host.
00:00:43.400 | And today, we continue on the theme of five radical housing ideas that I think are very practical.
00:00:51.700 | And my hope is that they will give you some creative stimulation for you to look at your own situation
00:00:58.000 | and try to figure out something that would be right for you.
00:01:01.100 | On the previous episode, I talked about the idea of learning the skills necessary by working and studying
00:01:08.600 | so that you can build your own house and do it without going into debt, without a mortgage,
00:01:14.900 | and do it in to whatever level of conventionality or unconventionality is right for you.
00:01:22.300 | Now, today, I want to talk to you about doing this as a wonderful source of income,
00:01:31.300 | which, if you have some starting capital, you can navigate to be able to build and develop
00:01:38.500 | a really rewarding income stream for you and do it in a very efficient way.
00:01:44.700 | Now, if you have the skills of working on construction, if you have the skills of working on housing,
00:01:50.300 | you can take those skills and you can combine them with the skill of finding a handyman special house
00:01:59.500 | or of building such a house or building houses that you then sell,
00:02:04.100 | marketing those houses and selling them to somebody else.
00:02:07.600 | And if you do this, it can be done in a very low key, but very efficient way.
00:02:11.100 | And it can be a wonderfully tax efficient way for you to live.
00:02:16.700 | Now, to do this approach, you would need a significant degree of flexibility.
00:02:21.500 | And this would need to work in your family. But I've known people who've done this.
00:02:25.200 | And here's how you do it. If you have the capital, you can borrow the money or if you have the money
00:02:30.200 | and you can buy a house that is in bad shape, but can be fixed up.
00:02:34.700 | You buy the house and you move into it. Because you're moving into it as your primary residence,
00:02:40.700 | even if you don't have the capital to pay for it, as long as it's a financeable house,
00:02:44.100 | meaning it's not totally destroyed, as long as it's a financeable house,
00:02:47.700 | you can move into it with very favorable debt terms, very favorable mortgage terms.
00:02:52.700 | And while living in the house, you can fix it up.
00:02:56.300 | Now, it's certainly a convenient place for you to work in your home.
00:03:01.800 | And if you can deal with the hassle of living around a construction zone,
00:03:08.400 | it can be a very convenient place for you to live and to work.
00:03:12.200 | Most people who remodel their house swear they'll never do it again.
00:03:14.900 | So I'm warning you, you would need to be very flexible.
00:03:18.000 | But if you can live in a house and fix it up while you're living in the house,
00:03:21.200 | and if it's your primary residence, and if you can then turn around and sell it
00:03:24.900 | after living in it for at least two years, you can take advantage of the exclusion of gain
00:03:32.100 | from your personal residence.
00:03:35.800 | So let's say that you bought a house that was a handyman special for $100,000,
00:03:42.200 | and you fix it up, and in your fixing it up, you're able to improve the value by $150,000.
00:03:50.400 | Well, as a single individual, you can ignore the gain of up to $250,000 of gain
00:03:55.700 | on your primary residence if you lived in the house for at least about two years,
00:03:59.700 | subject to a few rules.
00:04:01.700 | But just as long as you live there for two years and it's your primary residence,
00:04:04.200 | you're good to go.
00:04:05.300 | And if you're a married couple, you can do that on up to $500,000 of gain.
00:04:08.900 | So if you can live in the house and you can fix it up,
00:04:13.300 | then you can improve the value for somebody else that you can then turn and sell it to.
00:04:16.800 | So you buy the house for $100,000, you increase the value by,
00:04:20.700 | let me change the numbers to round numbers, $200,000,
00:04:23.800 | and you can turn around and sell it for $300,000.
00:04:26.900 | That's a very doable thing that many people in the real estate fix-up world are able to do.
00:04:33.300 | You market the house and you sell it for a high price.
00:04:37.300 | Well, that $200,000 of gain, as long as it was your primary residence,
00:04:40.500 | can be excluded from your income.
00:04:43.000 | That's $200,000 of legitimately tax-free income.
00:04:49.600 | Now, I don't use that word "tax-free" loosely.
00:04:52.800 | I'm usually pretty careful with my words.
00:04:55.500 | So frequently, if you hear me referring to "tax-free,"
00:04:58.800 | I'll say something like "income tax-free" or "employment tax-free."
00:05:03.500 | But in this case, that gain is, as long as it's your primary residence, is actually tax-free.
00:05:11.800 | That's $200,000 of totally tax-free income.
00:05:16.700 | You don't lose 7.65% of your income to employment taxes.
00:05:21.200 | You don't lose 15% of your income to self-employment taxes.
00:05:25.200 | You don't lose any of your money to income taxes.
00:05:29.200 | That's entirely tax-free gain.
00:05:34.600 | I want you to imagine the person or the couple that could live in this way systematically over time.
00:05:41.500 | If you could do one of these houses every two years, two, three, four years,
00:05:45.900 | however long it takes you, you've eliminated or reduced your housing expense,
00:05:53.000 | and you're gaining a really healthy, tax-free, efficient income.
00:06:01.100 | Now, this could be the foundation for your overall real estate portfolio,
00:06:04.200 | and you could do this in conjunction with other activities.
00:06:07.500 | You could do this in conjunction with your other real estate ventures.
00:06:10.800 | You could minimize the tax on those by doing like-kind exchanges
00:06:15.300 | from one investment property to another investment property.
00:06:18.400 | You could move into your nicest investment properties and enjoy the benefits of those.
00:06:22.700 | You can keep some properties from time to time. You can flip some properties.
00:06:26.300 | You'll have to figure out how you manage your cash flow.
00:06:29.300 | But by being flexible with your housing situation,
00:06:32.400 | you can use the skills that you've developed to fix something up
00:06:35.900 | and build for yourself a very consistent, reliable, and efficient form of wealth.
00:06:42.900 | Now, depending on your market, the $100,000 to $300,000 number might work or it might not work.
00:06:48.600 | Your market might be totally different, and for you, it's $25,000 to $60,000.
00:06:52.800 | Maybe it's $500,000 to $1,500,000.
00:06:56.000 | But you really could use that strategy to efficiently build for yourself
00:07:00.800 | a very nice, very nice, efficient form of income.
00:07:06.200 | Now, there are some downsides to this strategy.
00:07:07.900 | The first one I want to reemphasize, it's tough to live in a construction zone,
00:07:12.200 | and many people would not want to live in a construction zone.
00:07:16.100 | But depending on the neighborhood or depending on the type of properties that you're involved with,
00:07:20.900 | I could think of a lot of ways to make living in a construction zone much more pleasing
00:07:26.900 | and much more doable than many people would imagine.
00:07:32.200 | At the worst-case scenario, I think I, in good conscience, could live in a house
00:07:37.200 | and then temporarily move into a nice trailer in the backyard
00:07:41.300 | while I'm doing the worst of the dusty stuff inside and then transition back inside.
00:07:46.000 | I think I could do that, and in good conscience, still have that as my primary residence.
00:07:50.800 | And you can live very comfortably in a trailer.
00:07:53.300 | I know people that do this professionally.
00:07:54.900 | They are handymen.
00:07:57.300 | They're carpenters, and they live in some form of a trailer or an RV,
00:08:03.100 | and they always park it at the work that they do, and they work seasonally.
00:08:06.000 | They go and they fix up houses part of the year, and they live right by the house,
00:08:10.000 | so they can work a lot during the working season,
00:08:12.500 | and then they take off, and they don't work during the other season.
00:08:15.600 | So why not do that with your own personal residence?
00:08:19.400 | But I do think the biggest downside to this is very few people want to live constantly in a construction zone.
00:08:25.300 | I personally would be very careful about suggesting to my wife that we constantly live in a construction zone.
00:08:32.000 | But maybe there's a way to mitigate the effects of that construction zone
00:08:35.900 | and still get some of the benefits. That's up to you.
00:08:38.600 | Another big challenge is where do you get the cash for the properties?
00:08:41.500 | Some of these properties are financeable. Some of these properties are not financeable.
00:08:45.300 | But I tell you, if you have a reputation and a skill set,
00:08:48.100 | you may not be able to finance these properties with a conventional mortgage through a conventional bank.
00:08:53.100 | But I know a lot of real estate people who would be happy to lend their money on a fix-up
00:08:58.000 | to somebody that they knew was going to do what I described under certainly very favorable terms.
00:09:03.800 | So I think financing would be very doable if you didn't have the cash.
00:09:07.300 | The other big concern is where do you find the money to fix it up?
00:09:10.700 | Because in any project, you can't just—most projects, you can't buy a house for $100,000,
00:09:16.000 | increase its value by $300,000 without having to come up with money for materials, etc.
00:09:21.300 | So you either need some significant, compelling, reliable source of financing
00:09:25.600 | that's appropriately large, large enough to handle your project,
00:09:29.500 | or you need some form of cash income.
00:09:32.200 | But I think there are a lot of professions that could be very easily integrated with this type of approach,
00:09:36.900 | professions that give flexibility of time where you can earn money at certain times,
00:09:42.000 | but you have a lot of dead time.
00:09:45.300 | If I were going to do this, I would be involved in the real estate business full-time,
00:09:49.800 | whether that were in the form of working as an agent, or whether that were working as an investor,
00:09:55.200 | or working as a bird dog trying to go out and find deals and flip them to other people and assign the contract,
00:10:00.800 | or whether that were working as somebody who was maintaining other properties
00:10:05.800 | or working as a manager in the real estate business.
00:10:08.300 | I would try to build my life around it, and I would try to keep things flexible.
00:10:13.200 | So if I have the opportunity to work on my house,
00:10:16.200 | I do that until I have the opportunity to go and work with a buyer and show them a house.
00:10:21.300 | And many businesses that are a lot of work to grow into, big businesses,
00:10:26.900 | are not so much work if you can do them from time to time.
00:10:31.000 | What I mean is, if you're trying to make a real estate—
00:10:34.200 | let's say you're working as a real estate agent, and you want to make that all of your source of income,
00:10:37.700 | you can do that, and you can build a huge six-figure salary doing that type of work.
00:10:43.400 | But you can also fairly casually work as a real estate agent,
00:10:48.300 | flip a house here—sorry, list a house here and there, sell a house here and there,
00:10:52.100 | and make some money on the side very casually with a relatively low investment of time.
00:10:56.800 | And then you can use that other time to invest in your own house,
00:11:00.800 | so you have your own place to work on.
00:11:02.700 | And you can mix that in with some other sources of income that you put together that keep your flexible lifestyle.
00:11:08.500 | And your big profit comes from your living in and fixing up and flipping your house,
00:11:12.600 | which keeps your investments functioning.
00:11:14.400 | But you can have a relatively rewarding lifestyle
00:11:18.200 | without some of the constraints and restrictions of a very structured existence.
00:11:24.100 | Be careful. May work for you, may not.
00:11:26.400 | But I think the idea of buying a house, living in it, fixing up, flipping it,
00:11:31.300 | and keeping that money as entirely tax-free profit is very compelling.
00:11:36.800 | Hope you'll consider it and see if there's some permutation of that that would be helpful for you in your next house.
00:11:44.500 | Thank you for listening. You've honored me with your time and attention, and I'm grateful for that.
00:11:49.800 | And I hope that I've effectively served you today with some ideas and strategies and tactics and techniques and tools that will help move you towards your goals.
00:11:59.200 | Before you go, three simple requests.
00:12:02.100 | One, if there's an idea that's been helpful to you in today's show, make a plan to take action on it.
00:12:09.100 | Listening does lead to learning, but learning in and of itself doesn't automatically lead to a life change.
00:12:17.100 | It's action that leads to a life change.
00:12:21.200 | So take action.
00:12:22.900 | Two, take something that was helpful to you in today's show and share it with somebody that you care about.
00:12:30.400 | I'm depending on you to be a co-laborer with me in helping me to propagate the message that I'm seeking to share.
00:12:39.700 | That helps the person that you are engaging with, and it also helps you because teaching others is one of the most effective ways for you to learn and for you to cement your learning.
00:12:52.800 | Three, if there's an idea that's been specifically helpful to you, and if you're gaining financial benefit from Radical Personal Finance, I'd be grateful if you'd consider paying me for this work voluntarily.
00:13:05.100 | Come by radicalpersonalfinance.com/patron and you can sign up there to support the show at whatever level you feel is right for you.
00:13:12.600 | This is a voluntary support.
00:13:14.300 | That's my Patreon page.
00:13:16.000 | You can support me with a dollar a month, five dollars a month, ten dollars a month, any number that seems right to you.
00:13:21.700 | But if you're gaining financial benefit from this show, and if it's achieving financial results in your life, I'd be grateful for your financial support at radicalpersonalfinance.com/patron.
00:13:36.300 | Don't just dream about paradise.
00:13:38.700 | Live it with Fiji Airways.
00:13:40.800 | Escape the ordinary with Fiji Airways Global Beat the Rush Sale.
00:13:44.900 | Immerse yourself in white sandy beaches or dive deep into coral reefs.
00:13:49.800 | Fiji Airways has flights to Nadi starting at just $748 for light and just $798 for value.
00:13:56.900 | Discover your tropical dreams at FijiAirways.com.
00:14:00.700 | That's FijiAirways.com.
00:14:02.400 | From here to happy.
00:14:03.900 | Flying direct with Fiji Airways.
00:14:05.600 | (upbeat music)