Building a Rental Portfolio Through "Long-Term" Flips

When purchasing undervalued/distressed investment properties, people usually talk about items #1 and #2 as the primary purposes for a given property purchase.  I'd like to add a third to the list the list:
1) Buy-and-Hold
2) Flip
3) "Long-Term" Flip

Traditional Flip
The usual timeline for a flip is as follows:
1) Purchase property using cash or a hard-money loan.
2) Renovate the property as quickly as possible, while making monthly interest-only payments on the hard-money loan.
3) Sell the property as quickly as possible, paying off the hard-money loan, recouping renovation costs, and gaining a profit.

Long-Term Flip
The "Long-Term" Flip can go as follows:
1) Purchase property using a hard money-loan.
2) Renovate the property and place tenants for positive cash-flow.
3) Refinance out of the hard-money loan into a long-term mortgage or ARM mortgage.
4) Hold the property for 1-3 years.
5) Sell the property, using the profits as a down payment for a larger property using a tax-deferred 1031 exchange.

Using this strategy, the "Long-Term" Flip property becomes a "bridge" toward acquiring a cash-flowing multi-family property that may have been difficult to finance initially.

Benefits
Here are some of the benefits of this path:

1) During the "hold" period, your equity position improves via principal pay-down while you put cash-flow in your pocket each month. 
2) After a year, you can sell the property and keep the proceeds (paying long-term capital gains taxes, instead of short-term capital gains taxes).  Or, you can roll the profits into a more desirable rental property using a 1031 exchange.
3) In an ascending market, the holding period allows other comparables in the area to sell, which provide "stepping stones" to increase your eventual list price.
4) Assuming you sell the property and set aside the proceeds for a 1031 exchange, you can go shopping for a nice cash-flowing multi-family property with the profits you earned from the Long-Term Flip.  You can use the same lender that you used to finance the first property, who you now have a relationship with and positive payment history.
5) At the foreclosure auctions in my area (Seattle, WA), there are many SFR and Condos available as good flips, and very few multi-families.  Thus the initial flip is a viable way to create a burst of equity, and convert it to a desirable buy-and-hold later.

Summary
Performing a "Long-Term" Flip is a great way to create instant equity through a flip project, sell it without paying short-term capital gains taxes, and turn the proceeds into a desirable multi-family property later which you can hold for long-term cashflow, appreciation, principal paydown, and tax-benefits.