Do I sell or keep my home as a rental?

Question

Hello, I am a long time viewer and have been wanting to get into real-estate investment for the past year or so. I currently have a dilemma I am trying to sort through. We are in the market for our next home as we have out grown our current home. My original intention was to keep our current home as a rental. Our home is currently paid off and this house would rent for about $1,500 to $1,600/ month in our area. This would leave about $900 per month after expenses. (property taxes are really high in our area). The current home value is approximately $225K. The new home we are looking at is currently at $575K, that would be approximately $4k monthly payment, with a 20% down. My original intention in keeping our current home as a rental was for investment, tax purpose, and monthly cash flow (make this my first investment)  and have a HELOC on it for full value prior to moving out. But I started rethink this option that it might be best if I sold the house and rolled over the proceeds from that house to the new one plus my original 20% down and now my monthly mortgage would be  approximately $2775. At that point I would have approximately $320K in equity in the new home. I could then focus on investing in small multi-family units (what my real desire for investment actually is) like 2 to 4 unit homes. I think that is a better investment in my area in place of a single family long term house because of the high taxes and a better chance of having positive cash flow. I think I would get the best value of my current assets in this manner but I would like some opinions on this matter.   Thank you for all your input.

Masoud Arouni · Answer

@Fernando Luna, your instinct about multifamily is right but the decision between your two options is clearer than it feels when you run the actual numbers.

Option A keep the house as a rental, take the HELOC, buy new home at full $4K payment:
Monthly rental cash flow after expenses: +$900
Monthly mortgage on new home: -$4,000
Net monthly position: -$3,100 before you factor in any multifamily investment

Option B sell the house, roll proceeds into new home, reduce mortgage to $2,775:
Monthly savings vs Option A: +$1,225
No rental income but also no landlord responsibilities on a single family in El Paso

The real question is what you do with that $1,225 monthly difference. If you deploy it toward a multifamily down payment over 24 months that is nearly $30K in additional capital toward your actual investment goal. Meanwhile in Option A your $225K of equity is sitting in a single family rental generating 4.8% annual return on equity, solid but not spectacular.

Your gut is right. Selling, reducing the primary mortgage, and redeploying into a 2-4 unit gets you to your actual goal faster and with less complexity than managing a single family rental while also servicing a $4K mortgage on the new home.

The capital gains exclusion window makes this decision even cleaner, you will not get that again once you move out.
If you want to run different scenarios, different down payment amounts, different rental income assumptions or different multifamily targets, happy to stress test the numbers for you.

Pierre Guirguis · Answer

If the property is worth around $225k and producing about $900/month after expenses, that’s actually a pretty solid return on a paid off property. The tradeoff is that a large amount of your equity would remain tied up in a single family home, which tends to grow slower from a portfolio standpoint than small multifamily.

The decision usually comes down to whether you value the steady cash flow or the ability to redeploy that equity into larger assets. Selling would free up a significant amount of capital that could help you move into the 2–4 unit properties you mentioned, which often scale better from an investment perspective.

Another path some investors explore is keeping the home as a rental but accessing a portion of the equity through a HELOC or cash-out refinance. That can allow you to maintain the cash flowing asset while still creating capital for another purchase.

Since your long term goal sounds like small multifamily, I would probably evaluate which option gets you there faster without putting too much strain on your monthly payment. Either path can work, it just depends on whether you want to prioritize stability or portfolio growth.

Fernando Luna · Answer

Yes, the $575k is within my budget, but it would make like a whole lot nicer with a lower payment, that was the original plan to keep it and rent it. I just think that not paying interest in the long run on an additional $200K and rolling the proceeds into the new house outweighs the annual income of $10,800 per year form the rental.  If I sell my home now, I wont have to pay capital gains. I may be thinking of this the wrong way and that is why I'm just asking the opinion of other more seasoned real-estate owners/investors.

Jules Aton · Answer

There can be significant benefits from selling owner occupied and not having to pay capital gains tax. If a $575,000 home is within your budget I probably wouldn't put $320,000 down on it. If it isn't within your budget without that significant down payment to make the numbers work that is fine but consider it a consumable purchase not an investment. Would you still have the funds to purchase multifamily properties if you sell first home and put $320,000 into your new place?

Do I sell or keep my home as a rental?

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