I left the practice of law for real estate because I felt that no real estate broker was truly showcasing the ability for a primary residence to create wealth. Through delaying my ideal home and being very strategic in every home purchase and improvement, I was able to make a large enough profit to purchase my true dream home in the end. This article showcases the mindset and strategies that I personally used to make over $7 million in profit in 10 years. I teach my clients to follow similar strategies to unlock the keys to financial freedom through using their first home as a launching pad to financial freedom, and I am inviting you to mix and match strategies from this blueprint that best fit your goals and current circumstances.

Your primary home is often not only your best investment, but the investment with the lowest cost of capital and the greatest tax advantages. Every two years you can sell your primary home and the first $500,000 in profit is exempt from capital gains for married couples, and $250,000 if single. The negative of California having the nation’s highest tax rate has the converse benefit of tax-exempt savings being worth more in California than any other state (worth 13.3% more than income tax-free states). The fundamental premise of my housing investing philosophy is that any purchase of a home ideally meets the following criteria, which requires that the home:

1. Is purchased below market value − you make your money when you purchase, not sell;
2. Is in a neighborhood with above-average appreciation;
3. Has identifiable, yet correctable, flaws presenting a good deal;  
4. Is good enough to live in for over two years to get Internal Revenue Service § 121 $500,000 tax exemption and long-term capital gains rate;
5. Ideally your purchase is a fee-simple, single-family home, since properties where you own the land historically appreciate the most rapidly.

Since most of the profit is made through buying a home and remodeling it to increase the resale value, moving frequently is recommended to maximize profit. I typically moved after every two years, which resulted in a total of four moves between 2011-2021. In this article, I will discuss each of these four purchases and what strategies I utilized to get both a good value when buying, and how to optimize and thereby maximize value when selling. 

The purpose of this article is not to brag about my results, but rather illustrate that my model of “flipping” my primary home is proven. My profit from flipping my primary homes was over $7 million. By using the $500,000 exemption in capital gains all 4 times I sold my homes, that equates to $2 million of tax-free profits. The remaining $5 million is then taxed at the lower rate of long-term capital gains of 37.1% (23.8% federal, 13.3% state). This results in a tax of “only” around $1,920,000. Of the total $7,173,000 gross profit I achieved, the $1,920,000 of taxes makes my net profit $5,243,000.

This profit is more than one would take home earning a million-dollar salary for the same ten-year period. In California, the top tax bracket is slightly over 50% (37% federal, 13.3% state). Thus, a million-dollar gross income nets less than $500,000 after taxes. 

The net result of profit from “passively” flipping my primary home over a 10-year period, including the tax incentives, resulted in a higher profit than ten years of actively working with a million-dollar salary. The power of the tax benefits the government wisely bestows upon primary homes is often never fully leveraged. Use this business model when purchasing your primary home, and before you know it, you may be in your dream home.  

Now that you have the overall strategy, let me illustrate the tactics I used to build this wealth.
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In 2011, I was about to be named top agent in the country per the WSJ/Realtrends nationwide sales volume rankings from a pool of over one million agents. That ranking was my catalyst to finally open my own brokerage later that year. Preserving money for my business, I utilized the benefits of leverage and financed a mortgage for 75% of the purchase price, requiring only a 25% ($300,000) down payment. This purchase was a good value due to the following factors:

• I optimized timing through purchasing during the summer. I try to buy properties for myself and my clients during the slow summer months or winter holidays, and sell in the spring or fall markets when markets are stronger to optimize the housing market’s seasonal fluctuations.
• I bought the home at a discount since it needed remodeling, as most buyers do not like the uncertainty of tackling a major construction project.
• I had solutions to the problems that compelled this home to be a discounted value. I opened up the floor plan by easily taking down a non-load bearing wall (always check with your contractor before presuming you can take walls down).
• The property was poorly presented and had a price drop. With only one opportunity for a first impression, homes that are poorly priced often end up as good values. The home was initially priced at $1.398M, dropped to $1.348M, and I purchased it for $1.243M.

Optimizing the sales process almost always involves the flip side of the coin: fixing all the mistakes that were made by the past seller. The following strategies helped me earn this exceptional return:

• I sold during the fall, when buyers are back from summer vacations and motivated to purchase a home. Ideally, optimizing seasonality (buy in winter or summer, and sell in spring or fall) can make a 5% difference in appreciation due to a seasonal shift in buyers’ sentiment alone.
• I remodeled the home focusing on where the greatest return on investment (ROI) multipliers could be found. This included remodeling the kitchen and bathrooms, painting, refinishing the flooring, and opening up a wall to create a more open and modern floor plan. As a result, the home felt more updated and larger without the time and expense of adding more square footage. The key is to execute updates that have the highest rate of return relative to expense.
• Underpricing the home when listing it for sale to bring in multiple offers and move buyers’ reasoning past the low price I paid just two years prior. If
  I listed the home for $2.5M, more than double what I paid, it would appear I was a greedy seller. Instead, I underpriced it at $1.888M, and the contention of several offers increased the sales price to $2.648M.

In barely two years, I took a down payment of $300,000 and nearly quadrupled my investment. This first flip showcases the power of leverage and its ability to amplify good investments. 
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The next few homes I purchased were good values that I presented to my clients, but they needed so much work I could not convince any of my clients to purchase them. Employing my own analysis, I ended up purchasing these homes myself and took on the large construction projects that intimidated others. The projects that offer the highest return are often the most difficult to make. Here is how I got a good value on my 110-year-old Victorian masterpiece:

• There were several price drops, as the home originally was listed for $4.95M and was reduced by nearly 50% over the course of 6 months on the market.
• Purchased in July, traditionally the slowest of all summer months.
• The home had many issues and every room needed to be updated.
• The older home showed very poorly, with many of my clients calling it a “haunted house,” as it had not been cleaned in months and not updated in years.
• There were no kitchen cabinets and the floor plan was segmented due to the prevailing architecture in 1893.
• Maximizing the sales price by selling in March, when there is high demand and low supply.
• Opened all entries to make the formerly segmented home brighter and feel more updated and spacious.
• I got into the home at a better price because of all the work required. People are often overwhelmed at the prospect of a large project because most do not know who to call, how much it will cost, and how long it will take.

To optimize my profit when selling, I took the following steps:

• Optimizing market timing by selling in March, when there is high demand and low supply.
• Temporarily moved into a tiny investment property I owned, as vacating the home would expedite the remodel. Living in a second home for a period is another strategic move to optimize timing and garner the greatest return.
• I got into the home at a better price because of all the work required. People are often overwhelmed at the prospect of a large project because most do not know who to call, how much it will cost, and how long it will take. DeLeon Realty provides vetted contractors and architects while also helping our clients pick the best remodeling team, giving them the confidence to take on large projects.
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• Several price drops over a year and a half from the original list price of $8.2M down to $5.6M.
• A kind but inexperienced listing agent for this higher price point, chosen through friendship and not merit. They had only a week left on the listing agreement before the listing would expire, so the agent was motivated to get the property sold to receive their commission.
• Poor presentation of the home, which included pink walls and a darker interior. This custom-built home was of very high quality, but just needed cosmetic updates.
• Good timing of purchase, close to Thanksgiving, and I structured a 4-month escrow period to have time to prepare my previous home for resale.
• A whole house remodel was necessary to truly transform this home and maximize my return.

When I started the remodel, I again moved out for a short period of time to give the contractor the entire house and plenty of time. The numerous floor plan flaws of the home, such as the smaller kitchen, segmented and separated rooms, were all addressed in the remodel and were solved. In total I invested $1,100,000 on this large-scale remodel, primarily due to higher-end finishes being more expensive. The higher the price point of the property, the more buyers will pay to have a move-in ready home.

All journeys must have an ending. After “flipping” these past three homes, I was able to purchase my dream home with acreage. I received a good value through doing the following:

• Purchased from an agent who is a friend of the seller, and while an expert in selling mid-level homes, he has less experience with higher-end properties.
• Researched the seller and understood how attached he was to the property. I won over an all-cash offer at the same price, because I spoke of my love of the property and wanting to preserve and honor the seller’s vision over others who would likely make major changes to the home he built.
• Got into contract in July, my favorite month to purchase, as you can tell!

Current Valuation: One of the most known and accurate online valuation tools has the value of my current property, at the ten-year mark from the purchase of my first home, at more than $2,300,000 above what I paid for it. I have only put in $60,000 for new painting. So, this home has appreciated by $2,215,000 since purchasing it, per online estimators and my own analysis of the market.

All told, over the past ten-year period I made $7,138,000 through flipping my primary homes. While obviously 2011-2021 was a good decade in the real estate market, I feel that following this mindset and my strategies discussed above will allow buyers to optimize their return on investment of their primary home to maximize their wealth using tax-free incentives. I continue to be excited about sharing these tips and tricks to help my clients have similar success by viewing their primary residence as a vehicle to gain financial freedom.