Should I rent or sell my 'starter home'?

Question

Our family is growing and we're looking at upgrading to a larger home.

I'd like to understand the opportunity of keeping our current home (financials below) as a rental and see if that makes more sense than selling.

The Financials

• Purchased our "starter home" brand new in 2010 for $166,490
• Zestimate is currently at $281,510
• Mortgage Outstanding Principal balance is $137,331.69
• Monthly Payment (PITI) is $1,159.24
• Rent Zestimate is $1,625 /mo

In case it's relevant, our budget for a new home is $450K and we have 25% saved for deposit. If we were to sell our starter home I would take that cash and put it right into the new home as well (resulting in a ~$240K mortgage.)

For what it's worth, this would be our first rental property. I'm not even sure what needs to be considered beyond this so please ask away. Anything you can do to help me come to a decision is much appreciated.

Mark Costa · Answer

Thanks Michael for the perspective!

I'm still working out my philosophy but here's where I'm at right now:

I'd like to keep all personal liabilities (non-investments) as low as possible. This means prioritizing paying off mortgage on the home we live in. After that is paid off, our ability to take on risk will be much higher and I'm okay using leveraging for RE investments going forward.

I suppose the answer according to this philosophy is to sell the house in order to pay off the new one faster.

This just seems like a unique opportunity considering we already have the house and it has appreciated so much in a hot rental area. So it's an outlier I want to be educated on before I sell.

Thank you for the thoughts!

Michael Kistner · Answer

@Mark Costa

It really depends on your personal goals and how aggressive you want to be. If you're looking to get rental properties I'd keep it and I'd probably only put 5-10% down on the next property and use the remaining cash to buy more. Again that's my personal opinion.

I also prefer rentometer to rent zestimates, they're not usually too far off but I've found rentometer a little more accurate.

And would you manage it or get a PM. If you'd go with a PM I'd start asking for references.

There's pros and cons either way, good luck!

- Mike