Sell or Keep primary home as rental

[Greg Spencer]

Hey there,

I'm finding it difficult to keep my primary as a rental and purchase a new home.

I live in Santa Rosa, CA with my wife and son and we are looking for our next home with some more space.

Here is the breakdown for our current home.

Purchased date: 04/2020

3 bed, 3 bath

Purchase Price: $515,000

Amount on mortgage: $430,000

Current Value: $775,000 (based on 10 comps in sold in past 3 mos)

PITI: $2,800

Potential Rent: $3,500

HELOC: $190,000 (haven't touched yet)

Budget for new mortgage payment per month: $4,500

Houses we are looking to purchase are around $750,000+ in our area with a decent sized yard. I'm also looking at house hacking but its tricky at this price point. My next best alternative is Live In Flip which can be done but the issue I'm running into is how to afford both houses.

We have around $25,000 on hand plus I can pull out around $40,000 from my 401K loan. The cash on hand we are thinking of putting into a new roof since its needs one. So that leaves the 401K loan as the down payment but nothing left over for a rehab on the new home. I could use the HELOC for the rehab but the rate is 8.5% and would put us over our budget per month.

What would you do? Sell home and use tax free cash to purchase new primary plus a rental unit? Keep primary and try to make payments work for new home? Other ideas? I may have left out some other info but please ask away.

Thanks in advance!

[Theresa Harris]

honestly with that much equity in it, I'd sell.  The amount you'd have to pay in capital gains after renting it for 5 years (and selling it down the road), won't be captured through rent.

You could look to buy a multifamily and live in it for a bit.  The rent from the other units should allow your to live for a lot less than you currently are. Save that money and buy a house a few years down the road.