Here are a couple of primary residence hacks to help you break into real estate investing or ramp up your current investing. These strategies take advantage of the financing and tax opportunities unique to your home. You can harness either or both of these to jump-start your portfolio growth. In addition, you can make them part of your ongoing investing plan. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Primary Residence Financing It’s no secret that banks and lenders prefer to underwrite loans to homeowners. They consider investment property a higher risk. Their investment mortgages reflect this with larger down payment requirements, tighter loan-to-value restrictions, and higher interest rates. Your intended use of a property significantly impacts the financing terms and conditions. It's in your best interest to secure favorable primary residence financing for as many of your holdings as possible. How can you use this to your advantage? Instead of selling your current home when you are ready to move, convert it into a rental property. This allows you to maintain the advantageous payment structure and financing for that holding. Then, deliberately choose your next home with an eye for current comfort and future rental potential. Most residential mortgages do not require the owner to remain in occupancy for the entire term of the note. Banks typically require owners with this financing to move in within 60 days and personally occupy the property for six months (one year for federal loans). Read your loan documents carefully because once you have satisfied the lender requirements per your loan documents, you may change the use to investment. While holding multiple primary residence mortgages at once is possible, originating more than one with your existing lender may not be. You may need to seek financing from a new source with each primary residence purchased this way. Anticipate that the underwriter may require justification, so be ready to explain your move to a new primary residence while maintaining the old. Related: 4 Outside-the-Box Ideas for Financing Real Estate Investments In addition, the new financing may come with special requirements. When using this strategy, I have been required to have a long-term lease in hand for my existing home before they would finance my new primary residence. But it can be worth the effort as the favorable terms and conditions of properties purchased with owner-occupied financing can enhance your return. Primary Residence Tax Exemption Internal Revenue Code Section 121 spells out the primary residence tax exemption that is generally available to U.S. homeowners. To qualify, you must hold (own) and use (live in) your home for two of the five years prior to sale. Then, when you sell your home you can take up to $250,000 in gains tax-free. And it’s $500,000 if you’re married and file a joint tax return. One option would be to simply sell your primary residence every two years and put any tax-free gain to work in your investment portfolio. However, you can take this tax break a bit further by converting the use of your home for a portion of the time you own it. Primary Residence to Rental The most straightforward conversion is from primary residence to rental. Nothing in Section 121 prohibits the conversion of your primary residence into an investment property. You simply need to live in it for two of the five years prior to the sale. That means you can: Live in your home for two years Convert this primary residence into a rental property Generate up to three years of income Sell it without paying tax on the first $250,000/$500,000 of profit, excluding depreciation recapture for the years of rental Use the tax-free gain to purchase more investment property Related: The Tax Implications You MUST Understand Before House Hacking Rental to Primary Residence You can also do the reverse with your residential rental property. But the rules are a little different. When converting a rental into your primary residence, you have to meet the following requirements: Convert a rental property into your primary residence Live in it for at least two out of the five years prior to sale (if the property was the product of a 1031 Exchange, you also must have owned the property for at least five years) Upon sale take a portion of the tax-free gain based on the proration between periods of qualified use (as your primary residence) and non-qualified use (the time it was a rental before you converted it) Example: If you bought a rental and used it as a rental for two years and then moved in for three years, you would be eligible to take 60 percent (three-fifths) of the gain up to the $250,000/$500,000 limits tax free, excluding depreciation recapture for the years of rental Use the tax-free gain to purchase more investment property That’s a pretty slick way to generate income and secure your profit tax-free. It can also be a great way to relocate or transition into retirement. Buy your rental first, then when you’re ready to move, sell your primary residence, and take advantage of the tax exemption. Is House Hacking for You? Strategic use of your home to advance your investment portfolio may not be for everyone—but it can be done. Plus, it has the added benefit of upping your rental acquisition game. This is because with this approach you look at every investment as a potential home. You also look at every home as a potential investment. A deliberate utilization of both the favorable financing and tax benefits of your primary residence can accelerate your portfolio growth. Use of the strategies outlined here can provide capital to fast-track your real estate investing. Have you considered house hacking an investment property—and what’s your reasoning? Share with a comment below!