House hacking

[Jacob Sharp]

My co-worker has almost completely convinced me that the following strategy is the holy grail of building a real estate portfolio over time.  

My plan is this, buy another house that has good rental potential and move into as an owner occupied unit.  Live there for a year, and repeat.  I would be using a home equity loan on my current primary residence for the initial down payment and then paying that down over the course of the 12+ months I am in the new (to me) home.  After 12+ months I would repeat the process, each time renting out the property that I was leaving.  I currently live in a home that is worth about $250k and I am looking at higher margin rentals in the $100k - $125k as I get started with this strategy.  The plan would be to do this as long as my wife could stand it and then settle down with more permanent digs.  The idea with doing this is that my initial cash outlay stays low, around 5% of the purchase price for owner occupied financing.  After my wife says enough is enough, then I would start to do more traditional real estate investing where I would have to come up with a much larger 25% down payment for my purchases.  

I would plan to stay local, probably limiting my movement to the current school district I live in so my kids wouldn't be school hopping while all this is going on over the next 4, 5, 6 years or however long it takes to run its course.  

Is this strategy nuts?  Am I missing anything?  Thanks!