House Hacking.. But on Steroids: The 2-Year House Hack Method

House hacking is a great way to get started in real estate investing, but there is an even more powerful strategy.. What I like to call, "House Hacking on Steroids".
This strategy takes advantage of the capital gains tax exemption for primary residences to supercharge your wealth-building potential.

Here's how it works: 
You buy a property and move into it as your primary residence. You live there for two years while renting out any extra bedrooms or units to cover your mortgage payments and expenses.
Then, after two years, you move out and rent the entire property for another two years.
Finally, you sell the property before the fifth year and reap the benefits of the capital gains tax exemption.

The key benefit of this strategy is that when you sell the property, you won't have to pay capital gains tax on the appreciation of the property. This is because you lived in it as your primary residence for at least two years, which makes it exempt from capital gains taxes up to a certain amount.

For example,
Let's say you buy a duplex for $300,000 with 5% down ($15,000) and rent out one unit while living in the other.
Over the next two years, the value of the property increases by $50,000, so it's now worth $350,000. 
You move out and rent the entire property for another two years, during which time it appreciates another $50,000, bringing the value to $400,000. 
You sell the property after year 4 for $400,000 and realize a profit of $100,000, which would normally be subject to capital gains taxes.
However, because you lived in the property for two years, you're exempt from paying taxes on the first $250,000 of profit if you're single or $500,000 if you're married.

You just received a net profit of $85,000 TAX FREE from $15,000!
This doesn't even include the principal paydown, tax deductions and savings from that, OR the rental income received while owning that property either...
Taking those into consideration, your return will actually be MUCH higher!

But that's not all. If you make improvements to the property over those 4 years, you can increase the value of the property even more.
Meaning that when you sell, you'll realize an even greater return on your investment.

Another benefit of this strategy is that it's repeatable.
After selling your first property, you can use those proceeds to buy another property and start the process all over again.

Think of it like a snowball. 
That $15,000 down payment ultimately turned into an $85,000 profit.
Imagine using that $85,000 towards the next property, and what THAT could lead to.
And this is all TAX FREE money! 

In conclusion, this method of house hacking takes advantage of the capital gains tax exemption for primary residences. By living in the property for two years, renting it out for another two years, and selling before the fifth year, you can reap significant benefits in terms of rental income, appreciation and avoiding capital gains taxes.
Plus, it's repeatable, allowing you to build your income and equity gains at an exponential rate. So if you're looking to supercharge your wealth-building potential, consider "house hacking on steroids".

Check out my YouTube channel for more helpful information on the Pro's & Con's to House Hacking, along with other content around real estate investing!

Location: 1606 S Duff Ave #100, Ames, IA 50010, USA

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