Should we Sell or Rent?

[Mallory Stewart]

My husband and I want to get into real estate investing and I have done lots of research on it but have tons to learn still. We want to move into a bigger house for our family and we are wondering if we should keep our current house and rent it out to start our real estate investing portfolio or if we should sell our house and use the profits to invest some in stocks and  some in buying a distressed property (maybe a multi-family or sfh) all cash then Brrrr-ing from there. If we sell we would make a lot because it’s a sellers market, we wouldn’t have to pay capital gains, and we have equity. I would like to keep the house because it would cash flow nicely but I am worried about scaling after that? It would also be hard to have the cash to get the next loan on the next house if we don’t sell. But I also feel it will be hard to find a cheap property to buy all cash next.  TIA! 

[Will Fraser]

Hi @Mallory Stewart and welcome to the BiggerPockets forums!  

The key question to know here is this:  how would your existing home perform as a rental?  For example:  if you would be buying a property that conforms to the 1% rule as a replacement, but your current home is worth $250,000 and rents for $1,000 monthly then you'll typically find that selling your existing home and redeploying those funds (even if not immediately) will yield the most effective investments.

If the returns are comparable, though, then it can make a LOT of sense to keep your existing home.  If you all can be emotionally "okay" with leasing out your home (not always the case and you'll want to be very honest about that in your evaluation) then you'll find that you may already have solid equity, advantageous financing, and a great working knowledge of the home and neighborhood.  Talk about a leg-up!!

Bringing it home, I'd start by getting a handle on what your home would lease for and what the market value is and compare that with what you could achieve with a freshly purchased rental property (in any area you are keen on investing in, not just your neighborhood).