Cash flow conundrum decision

[Nicholas DeGaetani]

What should I do - buy my next primary residence and rent out my townhouse for a year at about a $500-$700/month loss (based on comps) or sell the townhouse when I buy the next primary residence and buy a cashflowing rental property? A few of the Pros and Cons I've noted...

Pros:

1) Tax incentives (home office, travel mileage, marketing, capex, etc.) to lower capital gains.

2) Potential 12 more months of equity build up yields more cash from sale in future (12+ months).

3) After 12 months, may obtain "landlord status" to consider 100% of monthly rental income (i.e. ~$2,300) towards DTI ratio

Cons:

1) Lower monthly savings rate by about $500-$700/month. Any Capex from appliance/hvac replacement further lowers monthly savings rate. In turn, this would increase the time to buy next rental property.

2) Negative monthly cashflow of $500-$700/month.

3) DTI ratio when buying 2rd property (2nd rental may be negatively impacted/reduced by $1,000.

Note: I've been eager to get started since 2012 but life (marriage, baby, etc.) have slowed plans down. So I don't want to rent this property out just to get into the rental game.

Questions:

1) Based on the Pros and Cons, what would you do?

2) Does anyone have a CPA with rental experience who they recommend?

3) Has anyone used a Solo 401(k) (i.e. self-directed IRA) before? If so, can you recommend one brokerage companies over another?

Thanks in advance and Happy New Year!

Nick

[Will Pritchett]

You are in an expensive market there. I'd sell while most markets are still high. Take your tax-free gains and move to a new home with minimum down payment. Save your cash and buy in a more affordable cash-flow market. I don't have much more info but negative cash flow doesn't make sense to me unless you are really chasing appreciation. 
     My two cents. I'm with you, I'd prefer the smaller house but as the saying goes, "happy wife, happy life"  If you can, I'd try to get her on board over time. I got my wife to buy in and now she runs our business and is better at it than me. I really like sharing the adventure with her. 
     Stay focused and it'll come together. There is no one right answer to this stuff. Good luck!