New investor with some questions regarding financing

[Alex B.]

Hello, I've been a long time listener but due to life circumstances wasn't able to start my REI journey.
I'm now at a point where I am ready to buy my first rental property, looking at at least a duplex but leaning more towards a 4 unit in my area of Cleveland Ohio (looking to buy on the west side of town).
I've been fortunate enough to buy and pay off my primary residence (single family home in suburbs of Cleveland), which appraised for over $400k as of a few months ago.
Some of the questions/ideas I've had were:
For the primary residence, either sell it to capture the equity and have some dry powder in the bank account, or rent it out. Looking at comparable rentals in the area, they are $3200-$3500 per month, with taxes/insurance being around $700 per month currently on my property.
As for the financing question, I have strong (800+) credit and decent income (1099 not W2, which could be an issue), so I was thinking of doing FHA and house hacking. Or I could pull out a HELOC on my primary residence to finance down payment for the new property through a conventional loan.
For people in Ohio familiar with OHFA Next Home program, I was thinking about going through that as well.
My goals are long term, 10-15 year horizon, buy a few properties for renting out, paying them off slowly, and fund a semi-passive retirement.
I'm also open to connecting with local people, especially existing investors as mentors or just to bounce ideas/deals off of.

[Drew Sygit]

Quote from @Alex B.:

Quote from @Kevin Sobilo:

@Alex B. a few thoughts:

1.  Don't pay the tax man! If you sell your primary residence while it still is your primary residence (lived there 2 of previous 5 years), then you don't pay tax on $250k of profit for single person or $500k for a married couple filing jointly. How often can you make money and NOT pay the tax man?!?

2. Renting your paid off house sounds good in theory, but you have a lot of eggs in 1 basket. If you have problems with your renter that is a much bigger issues with damage, vacancy, etc. 

3. If you keep a $400k paid off house and prices go up 10% you gain $40k in equity, which sounds great, but if you use that $400k to buy $2,000,000 with loans and the market goes up 10% you gain $200k!

4. So, to me selling the primary and buying a 2-4 unit house hack sounds pretty good. You can likely keep a nice chunk of money available to buy a 2nd house hack in another year or so. 

 Thanks for the reply Kevin.
I have thought about the capital gains that I can exclude, and between the price I paid and the renovations I've done (kept all the documentation), I should be able to exclude all the profit from the sale.
As far as having all my eggs in 1 basket, that's definitely a valid point.
At the price point for the rent and location, I think I'm less concerned about damage (with proper tenant screening too), but yes, vacancy would be a bigger issue.
Having said that, I think I've got a bit of an emotional attachment to the house, it's the longest I've lived anywhere, great location, great house for a family and I've done a lot of the major improvements already (roof, electrical, HVAC, basement waterproofing), so I might return to this house in the future when I have a family.

You just stated BIG future problem - your emotional attachment to the property.
This may cloud your future decisions, so another potential reason to sell.