Long-term strategy for full-time employee (NYC area)

[Nick Salemme]

Curious on everyone's thoughts on the following strategy I am considering. Note that I work full-time in NYC and live nearby in NJ and want to do real estate on the side as a long-term play and ease into investing. I have already bought my first unit (primary residence) in mid 2016.

The strategy I am considering is simple. Buy a unit (condo, SFH, etc.) as a primary residence in a relatively nice area (but also with a high likelihood of appreciation) that would cash flow in today's market if it were to be rented out. Live in it for 2 years and then buy another and rent the first unit out. In 2 more years do the same thing again. At this point, consider selling the first unit depending on the current market/my need for cash or continue renting the unit out. Continue this cycle of buying every 2 years and re-evaluating whether or not to sell some of the units that have already been lived in for 2 years. Along the way, most of the purchases will preferably need work done (my dad is a contractor) and those can be sort of a longer live-in-flip/rent strategy. Once I have accumulated 4 or 5 units, I want to start using the cash flow and any cash received from any sales to pay down the mortgages. The end goal is to have roughly 5 rental units that are completely paid off and can help supplement my income and potentially give me the opportunity to branch into a different career/lifestyle.

The main reason behind the 2 years of living in the units is that per U.S. tax code 121 (exclusion of gain from sale of primary residence), if you have lived in a unit for 2 of the last 5 years, an individual does not have to pay tax on the capital gains for up to $250k of gain ($500k for married couples). Also, 2 years gives me enough time to save up enough cash for another down payment, without cutting into my excess cash reserves/vacation savings. Another reason for this strategy is that when buying as a primary residence, the financing terms I can get are much more favorable and in turn, increase the future cash flow due to the lower monthly costs.