Should I cash out and take the tax free money?

[Craig McCarter]

Hi BP Forum,

I am new to the BP community, and am interested in any feedback you may have. I currently have one rental house in Charlotte, NC. We lived in the home for 4 years. during that time we were able to save enough for a down payment on a house to fit our growing family, while staying in our beloved neighborhood.

The question I am struggling with is, should I sell and cash out of this investment while I can still claim the primary residence tax exception?

some details:

The home cash flows approx. $2,500/year when factoring all expenses. If I were to sell today I stand to pocket around $165K, and if I renew my tenants for another 12 month lease I would expect that to go up to around $180K or more next year (that would still keep me in the 3/5 tax window). My plan is to reinvest the money to expand my portfolio. This seems like a no-brainer in some ways, but a few things are holding me back - It's in a great neighborhood that is appreciating rapidly, with steady demand from high-quality tenants. It's 2 blocks from my current house so it's been super easy to manage. If I cash out and re-invest I will almost certainty need to buy properties that are much further out from town, increasing the time to manage, or possibly requiring a property management company. There is a little bit of an emotional component too because we had both of our daughters while living there. This neighborhood is only getting better, and fast, so why mess with a good thing? On the flip side, this seems like a way to quickly level-up from one unit to multiple. Go from a true amatuer to a semi-pro :)

Am I crazy for even considering not taking the tax-free steak money and laughing my way to the bank?

Thanks in Advance!