Buy, House Hack, Rehab/Rent, Sell (after 2 years), Repeat

[Devon Moore]

I am a new investor and always adjusting my strategy as I learn more. I realized a problem with the house hack model is the difficulty to pull out your capital after a renovation like you can with the BRRR method. I kind of combined the House Hack, BRRR, and Live in Flip strategy here. I'm curious what people think or if anyone has done the same.

My goal is to build a portfolio of buy and hold rental properties. The plan was to get a 5% down loan, house hack for a year, move out and buy another. I bought my first duplex about a year ago in Salem, MA (north of Boston). This property has a lot of value add opportunity by adding bed rooms and square footage. Based on my expected ARV, the 5% equity will be about 20% or $100k after the renovations. The problem is, being young and planning on continuing to househack my way through a few more properties using the low down payment programs for owner-occupants, that equity doesn't do me any good sitting in this property, and I can't refinance any cash out because all the improvements only brought it to the minimum 20%. I detail the plan more below:

Buy: I bought a duplex under market value with considerable value add, but is good enough to rent out the nicer unit and live in/rehab the other unit.

House Hack: Take advantage of the low downpayment, owner-occupied loan

Rent: I am renting out the bottom unit to offset my rent. I have also had friends rent the other bedroom in my apartment at a rate under market (since I would be doing a lot of work on it and they are friends). This minimizes the carry costs significantly. I paid $700 on the $3,250 mortgage payment.

Rehab: Unit 1 (first floor) - bought as a 1000sf 1BR 1BA, will move in for the 2nd year once their lease is up and make it a 3BR 1BA. Unit 2 (second/third floor) - bought as a 1000sf 2BR 1BA (900sf unfinished 3rd floor), will improve layout of 2nd floor and add 2BR and 1BA and living space to the 2rd floor. This will be a 1,900sf 4BR 2BA apartment.

Sell: These renovations will increase the value significantly, and since I lived in the property for two years I will not be taxed on the gains.

Repeat: Take the profits and reinvest as a 5% downpayment on another value add property. In this case I would have about $100k in capital to reinvest.

Pros:

1. - Will be able to scale quickly since my capital will not be tied up in my first property. I will be able to buy in better areas and will have a higher renovation budget for property #2.  
2. - I will save about $24,000 in rent over two years
3. - The longer time frame allows for more DIY, saving money on contractors
4. - Tax savings

Cons:

• - Have to wait two years before getting another property
• - High leverage (which I am comfortable with in a house I live in at this point in my life)

What do you think?

- Devon