But you can only get the sec121 exclusion once very two years I believe..

A self-directed IRA is a diversification tool for the tax-sheltered retirement savings, and is intended to engage in passive, arm's length investments exclusively for the benefit of the IRA. 

From your post, it sounds like BRRRR and buy-and-hold are mutually exclusive; is that true?

However, you will not get the full 121 Exclusion of $250,000/$500,000 because it was an investment property first. 

If you are trying to rent exclusively to other military members then realize that you will never have long term tenants. 

A sharp buyer's agent will have an exclusive buyer's broker agreement that covers buyer-paid commission for FSBOs, but that's something that I don't think is common.I'd suggest that you be reasonably generous and offer 3% or even 3.5% and make that obvious in your FSBO listing. 

At issue is whether I can exceed the $15,000 annual gift exclusion to my kids by essentially making the properties functionally unmarketable by separating the two.  

Prop 21 changes that exclusion to a 15-year rolling basis.3.

I had been working in downtown Nashville the previous few years and had made friends with some of the local homeless newspaper salesmen.  

In addition, if you are self-employed with no full-time employees you may wish to consider opening a Solo 401k instead of a self-directed IRA as it has several advantages over an IRA LLC such as much higher contribution limits, direct checkbook control (i.e. no need to have the account at a specialty trust company), ability to take a 401k loan, exclusion from unrelated debt finance income tax with respect to investment in real estate acquired with non-recourse financing, etc.In addition, please note if you purchase debt-financed real estate with your IRA, unrelated debt finance income tax should apply to the income attributable to debt-financed real estate held by your IRA.