Buying new primary residence, rent out current one?

[Adam Berlinberg]

We have a SFH that we have lived in for four years, and looking to move a few miles away into a better school district as the kids are reaching elementary age (and homeless issues, and neighborhood not as great as it used to be). We have about $350,000-400,000 in equity in the house (very hot market), and our rate is 3.1%. If we can swing the cash for a down payment on the new house, is it worth keeping the current one and renting? Not a ton of rentals in the area, but still a very nice neighborhood and comps would be a cash flow of $700-800 a month (minus property management). Not sure if it is easier or better these days to just take the tax free equity and not worry about it, or if hanging on to a low rate SFH is worth it these days. High income household and involved in syndicates but no individual investment properties owned (though interested).

[Andrew Postell]

@Adam Berlinberg I mean, everyone is different but I LOVE this type of a strategy.  There are 2 advantages to doing this:

1. You know have a rental that has a mortgage rate WELL below market conditions.

2. You have tax advantages to rent it out for 2 years.  If you occupy your primary home for 2 out of the past 5 years...you can sell and not have capital gains on the proceeds.  There are limits to how much is tax free ($250k for single and $500k for married) but if you rent it for 2 years, that's 2 years of appreciation you get...on a $375,000 home...using 5% appreciation...that's an additional $37,000 in your pocket.  And that's if you sell.  You could certainly continue to hold it.

I love this strategy.  Love it! Love it! Love it!