The Jensen Family’s Journey to Financial Freedom Through Live-In Flips

In the world of real estate investing, the term "flipping" often conjures images of quick renovations and rapid profits. However, for Carl and Mindy Jensen, a Colorado-based couple, flipping homes has taken on a unique twist. They have successfully profited approximately $1 million through a strategy they call "live-in flips." This approach not only allows them to generate significant returns but also helps them sidestep capital gains taxes, thanks to a little-known IRS rule known as the Section 121 Exclusion.

What is a Live-In Flip?

The concept of a live-in flip is straightforward yet effective. The Jensens purchase a home, move in, and undertake renovations while living there. Once the property is updated and the market conditions are favorable, they sell it for a profit. This strategy mitigates some of the risks associated with traditional flipping, where investors often buy properties solely for the purpose of renovation and resale.

Carl Jensen, who retired in his 40s and now runs the financial independence blog "1500 Days to Freedom," explains the appeal of this method: "The beauty of this strategy is you need a place to live. 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."

While living in a construction zone can be challenging, the Jensens have found the rewards to be well worth the sacrifices. They are currently wrapping up their eighth live-in flip, and their journey has been marked by careful planning, strategic investments, and a keen understanding of the real estate market.

The Financial Upside: Profits and Strategies

Over the past decade, the Jensens have employed various investment strategies, including index-fund investing and private lending, to build a seven-figure net worth. However, their live-in flip strategy has been particularly lucrative, yielding profits of just over $1 million from their first seven properties.

Achieving success in flipping requires more than just buying and selling homes. The Jensens emphasize the importance of waiting for the right deal and accurately estimating renovation costs. Their experience has taught them that patience and diligence are key components of a profitable flip.

The Section 121 Exclusion: A Tax Advantage

One of the most significant advantages of the Jensens’ live-in flip strategy is their ability to leverage the Section 121 Exclusion, a provision in the IRS tax code that allows homeowners to exclude up to $250,000 of capital gains ($500,000 for couples filing jointly) from the sale of their primary residence. To qualify for this exclusion, homeowners must have owned and used the property as their main residence for at least two of the five years preceding the sale.

The Jensens first utilized this exclusion in the early 2000s when they purchased a home for $135,000. After making some cosmetic improvements, they sold it for $235,000, resulting in a capital gain of around $100,000. Because they had lived in the home for the required period, they paid no taxes on those gains. Mindy recalls, "We could have excluded up to $500,000 since we were both on title."

Their success continued with subsequent properties, including a home bought for $265,000 and sold for $365,000, yielding another $100,000 profit. The couple learned about the Section 121 Exclusion through their own research and discussions with a tax professional, who informed them about the nuances of the tax code, including a potential loophole that could increase the exclusion amount based on the number of individuals on the title.

Maximizing the Exclusion: Future Plans

While the Jensens have yet to exceed the $500,000 exclusion limit on any single flip, they are considering strategies to maximize their tax benefits on their current live-in flip. Mindy mentioned, "We’re actually considering putting one of our daughters on the title," which would allow them to shield up to $750,000 from capital gains taxes if they sell for a significant profit.

This forward-thinking approach exemplifies the Jensens’ commitment to financial independence and their ability to navigate the complexities of real estate investing. By understanding the tax implications and leveraging available exclusions, they have positioned themselves for continued success in their live-in flipping endeavors.

Conclusion

Carl and Mindy Jensen’s journey through the world of live-in flips serves as an inspiring example of how strategic real estate investing can lead to financial freedom. By combining their renovation skills with a deep understanding of tax benefits, they have successfully profited from their investments while minimizing their tax liabilities. As they continue to explore new opportunities and refine their strategies, the Jensens remain a testament to the power of informed decision-making in the pursuit of financial independence.