Once you convert your property to a primary residence you fall under Section 121 (the 121 exclusion), which excludes only capital gains and not depreciation recapture.

If I wanted to raise the value I would- increase income (raise rents, vacancy)- reduce expenses (capital expenses at the time of purchase to reduce maintenance costs?)

Have capital, good credit, but limited time and limited RE experience.Options I'm tossing around....

How much capital do you have?

Taking a bridge on your equity with the hope that you will be able to continue raising capital and pay it down puts both you and the investors at risk.

I guess the big problem I see is reporting to the IRS a 2k income, followed by 70k capital gain.

I need to raise some serious capital and have decided to go the route of using REIT - Real estate investment trust.I was considering using Delaware or Nevada, but someone mentioned to me at a real estate seminar, i should use the state where the properties would be located.I am intensively studying the legal requirements as per IRS code section 856.

Favorable capital gain rates.

This lets you leverage your capital to do more deals.The refi for most investors is to get the lower rate locked in and get some cash back to invest again.If you run out of cash or have "trapped equity" and little cash left then you have to partner with other investors to do deals.I have seen it work sometimes but generally it is a mess unless you can do multiple deals with one partner instead of partnering with one investor for this project and another one for the next.The problem with partners is down the road they get different reasons for selling or exiting the property early.I don't see the refinance bank loaning up to 100% of current value and letting you pull out the 30% and get it back.What many investors do is take on a property with maintenance and vacancy issues using hard money.Fix the problems and then create a higher value for the property.In commercial the weight is given to the income approach.So if you had 50 unit building.Units rent for 500 a month but are 50% occupied.So currently 150,000 gross income yearly.Value roughly at a 10 cap at 750,000 going in.You get for 600,000 and put 150,000 in repairs fixing problems.Total funds needed is 750,000.HML says they will fund 525,000 and you put down 225,000.You work hard and get occupancy up over 6 months to 90%.270,000 gross rents with NOI around 135,000.New value at a 10 cap for refi is 1,350,000.Refi at 75% LTV would be 1,012,500.You get 262,500 back and then your original 225,000 you put down based on the new value.I hope I am making sense.

I think people buy multifamily with not enough reserves, don't plan for capital improvements, start deferring maintenance, slowly the deferred maintenance catches up, resulting in less occupancy which leads to foreclosure.