Should I add another R to BRRRR?

[Matt Hangsleben]

I am currently looking to purchase my 2nd rental property and am trying to figure out what strategy to use. I have some friends that have acquired their single family home portfolio by living in all of them for a year prior to renting them out. This allows them to only put 5% down initially and repeat the process every year. I am getting started in real estate about 10 years later than them and have 3 young kids which would make this a little more difficult. I have also been reading a lot about the notorious BRRRR strategy and have been considering both options as I look. While the BRRRR strategy sounds like the best route to go as it requires no money down, I am looking to sell my current home and thought I would look for something we could live in for a year and then rent out.

I found a house that is listed under value and has room for improvements (needs a new roof, has no furnace or AC, outdated and not kept up).  The kicker is that it shares a back yard with my parents house which has my kids thrilled about moving there.  So I am trying to figure out what strategy would be the best to use.  This is where the additional "R" comes into play; RESIDE.  I am thinking of Buying it (under value with private money), Rehabbing it (some right away and some while I am living there), Refinance it, Reside there for a year, then Rent it out.  

By residing there I would have the option of taking out 95% of the after rehab value instead of the traditional 75%-80%.  This would also depend on the appraisal value, rent price, and how much cash flow I want.  I am new to this and would appreciate your opinion.  Thanks!

[Joe Splitrock]

@Matt Hangsleben I always refer the an added R as Regret. Because once you pull all your cash out, you regret that there is no equity and low cash flow. Partially joking, but also a real concern.

One important question: I know the kids are excited, but how about your wife? Just saying sometimes you can get too much of the in-laws.

I think your plan is pretty solid. Transitioning a primary residence is a great way to dip your toes in real estate without much cash down. The down side in your situation is moving around with small children can be difficult. Once they get used to living by their grandparents, it could be a tough move.