What is my strategy called? Fix and live, house hack, BRRousing?

[Kyle Wilson]

I am a newbie looking for my first deal (a duplex, triplex or fourplex), and I had the epiphony last week that every time I buy a home to live in, I should be applying the same strategies used on real estate investing on my own personal residences.

My wife and I are getting close to upgrading to a new residence (baby #3 is on the way). What I want to do is buy using the 80% rule. For example, pay $60k for a home, $20k rehab, and ARV is $100. That way we are building wealth on our personal residence each time we upgrade.

What us the easiest way to tell others the strategy I'm trying to do with my personal residence? It's not exactly house hacking, since I'm not renting part of the property to anyone else (though we're not opposed to hacking a duplex if we find the right layout and yard). It's kind of like a BRRRR without renters, since we might pull money out.

We have a friend couple who have done this with three homes now. They buy an ugly property, fix it up while living in it for 2 years, buy the next one and keep the old one as a rental.

[Mindy Jensen]

@Kyle Wilson, this would probably be called a Live-in BRRRR, if you're keeping the property after you're done fixing it up. If you're selling it outright, then it's a live-in flip. I do the live-in flip to avoid capital gains taxes, but I don't turn my former properties into rentals.

There are a few things to think about with this strategy.

1. Living in a construction zone stinks.

2. I live-in flip because I am exempt from capital gains taxes on my primary residence up to $500k (because I'm married, up to $250k if you're single.) This is because I live in it for 2 years. Once you're not living there anymore, the capital gains tax exclusion stops. It's valid for the time you've lived in it, but then you can't rent it out and continue to write off all capital gains. Definitely consult with a CPA well versed in real estate to make the most of this strategy. 

3. I only do SFR, so doing this on a multi family would incur different taxes as well. I'm not a CPA, but I believe you can only exempt the part that is your home. So half of the duplex, 1/3 of the triplex, etc.