I love reading articles where people reach financial freedom at an early age. A couple of weeks ago, I mentioned how Joe Udo is growing a dividend snowball to reach his financial freedom.

Today, I bring you the story of Mr. 1500 of 1500 Days. I first met him at last year’s personal finance convention, FinCon. Quite honestly, I saw his small plastic dinosaurs show up on my Twitter feed and figured I had to stop by and say hello to them. Gimmicky, yes… but it worked.

Recently Mr. 1500 told his story of how he became a millionaire at the age of 40 on RockStar Finance. As he says on his own site, he doesn’t make a top income, he’s not ultra-frugal, and he’s had some setbacks. Despite all that, he got there.

How did it all happen? There was a mix of modest living, focusing on savings, investing, and letting compound interest do its thing. Two things caught my attention. The first was his very un-Lazy approach to everything. He openly says that he worked really hard when he was young. After an 80-hour work-week, he’d do the second thing that caught my attention…

The Live-In Home Flip

I’ll defer to Mr. 1500’s words:

“When I started at my first job post-college, along with paying off those loans, I signed up for the 401k immediately and began saving. I also bought my first home for $140,000. It was a starter house that wasn’t pretty, but had a great location. I made modest improvements like putting in tile and painting. With a strong real estate market at my back, I sold the home a couple years later and made $100,000 in profit. My wife and I looked at each other and said, ‘Hey, let’s do that again!'”

And they did it again. It’s not clear from the article how many times they did it. He makes a great point that they didn’t have to pay capital gains on the profit, because they lived in the house for a couple of years (thanks IRS tax-code!). This money was reinvested in more property and stocks.

So flipping houses is the answer. Cue a short tune from my new favorite TV show:

(Did I mention that I have a 1 and 2 year old?)

But not so fast…

Mr. 1500 then tells of a setback where they bought a grand property just as the housing market collapsed. They put a lot of work and a lot of money into it. They broken-even on the money they put in, but not the work. It was a waste of valuable investing time and energy.

We’ve all seen the house flipping shows where everything turns out great at the end. I don’t think I’ve ever seen them lose money. (Side Note: This unfortunately leads to those shady house flipping seminars that you hear on the radio.) Reality check: Flipping houses is difficult and requires a lot of specialized knowledge, especially if you are aiming to do it in 6 weeks like in the TV shows.

There was a sizable portion of luck. The real estate market giveth and it taketh away.

So which is it? Is it awesome, hard work, being smart, or just hoping to be lucky? Like everything in life it is a combination of all four.

Lady Luck can go either way. You are never going to control her, so you might as well just do her thing. Working hard and being smart almost always pay off. For Mr. 1500 the combination paid off in real money early on when Lady Luck was with him. When Lady Luck left, the combination helped prevent actual monetary losses.

So is the live-in flip awesome? I think it’s great for many people. I’m not handy, so it isn’t something I could seriously consider. If I have to outsource all the work, the chance of profiting is lower.

For me, the key would be to buy a real bargain. Mr. and Mrs. 1500 “sought out ugly houses in great neighborhoods. If a house had pink toilets and green appliances, [their] eyes lit up with joy.” Maybe there’s a chance at getting a deal in foreclosure. If you are able to buy low, there’s less of a chance of market crash making it worth less.

I’d also minimize my risk by buying a place that I could live in myself for years in a worst case scenario. If that grand property was one they were comfortable living in, they could wait out a stock market crash.

I’d also consider the “rentability” of the property. A condo might be a good option. If it doesn’t sell, you can rent it out and make some money while you are building equity. When the housing crash turned my wife and my condos upside down (not literally, “equity-ly”), being able to rent them was a savior. The downside is that when you rent a property it becomes an investment property. When you sell an investment property you might have to pay capital gains tax (consult your local tax advisor).

Finally, I’d keep in mind that the improvements are taking place over a couple of years. That should be a lot of time to do some of the basic upgrades. You aren’t “on the clock” like the professional house flippers in TV shows.

If you are able to minimize the downside risk, and capitalize on the sweat-equity of fixing up a home, maybe you too can make a six figures on a flip. Do this a few times at a young age like Mr. 1500 and maybe you’ll be able to retire early too.