Strategy questions, Primary residence, STR, Cost seg, etc.

[Benjamin Noblitt]

Hi everyone,

I am a newbie here, and I am trying to learn as much as possible right now. I have been thinking about a good strategy for me to start off since I already own a home. I would love to see what you guys think of my proposed scenario below:

Step 1) I bought my first house using FHA with 5% down in November of 2021

Step 2) I plan to live in the house for 2 years 

Step 3) I buy a new primary residence with another FHA loan at the 2 year mark (November of 2023)

Step 4) STR the first house for 2 years

Step 5) Get a cost segregation analysis to write off as much as I can with accelerated depreciation (using the STR "loophole")

Step 6) Sell house either with a 1031 to avoid taxes, OR sell house outright and get tax free $250k from capital gains.

Step 7) repeat process every 2 to 3 years

Please chime in with any guidance or help! Thanks in advance.

[Dave Foster]

@Benjamin Noblitt, You've just described a tried and true way of building long term wealth using the most advantageous financing possible.  One thought would be that your decision point on selling and either 1031ing or taking the $250K exemption should come down to the performance of the house.  Many times good primary residences are not the best rentals.  If that's true then sell more quickly and take the primary residence exemption - BUT DONT do a cost seg on it.  In a pimary residence exemption sale you have to recapture depreciation.  So that could kill you.

If the property is performing good then keep it and rent it until time to sell with a 1031.  In this case do your cost seg because the 1031 will defer all of that depreciation as well.  Or refi it judiciously to get cash for your next down payment.