Pay-off mortgage or invest in real estate (first time buyer)

[David Kimball]

Hey there,

My question comes from the fact that I have 2 stepchildren who go between their mom and dad's houses. The dad moved to a town, an hour away, which makes it really inconvenient to travel to and from all school events for pickups, dropoff, etc. So, we are considering moving closer, but don't want to sell the house we live in.

We currently own our primary house, with $140k left on the mortgage. We are in a 15 year fixed mortgage, paying $2000/mo (property tax included) at a 2.75% rate. It is valued at $420k, and should rent for $2000/mo. 

I have $150k available.

My question is, do I:

1) Pay off the remaining mortgage, freeing up the $2000/mo in cash outflow, and then save it towards a downpayment on the next house, and then keep paying the rental income as additional principal?

2) Use a large chunk of the money as a large downpayment on the next house, keep some backup to cover costs (vacancy, repairs, etc) and not pay off the current mortgage yet

I figure the answer is "it depends".

I am leaning towards option nr. 1: pay off the house / and use the cash flow to accelerate paying off the next house quickly. As a first time landlord / investor - this seems like a safe option, with less risk.

What am I missing?

What would you do and why?