Best strategy for big 2nd home purchase/rental/ house hack in CA

[Nathaniel Agnini]

Howdy all! Here is the quick and dirty. Looking to purchase a home in Santa Barbara in the next year. We've been spending half the year there for 8 years and have decided that's where we'd like to "settle". For all intents, this will be our primary residence 9-10 months a year, with 2-3 summer months available as a medium term rental, netting $10-15k monthly. Home will likely be $1.5 million. I have $300k cash to put down if need be, sourced from the sale of a property last year. Here are our other assets and details:

- Property 1- Primary worth ~ $1.8 - 2 million. Owe $650k. Financed at 2.875% 30yr fixed. PITIA plus utilities $3500 a month. Property grosses $60-80k annually as an STR, so we're cash flowing $20-40k annually. We will continue to live here in the summer, but this does not affect STR earnings.

- Property 2 - Rental property worth $625k. Owe $250k with 4 years left on a 7 year ARM at 4.25%. Has operated as an STR, medium term rental, and is currently occupied as a long term rental until next June. PITIA ~ $1800 a month, rents at $3500 a month, netting about $20k annually.

Both of these properties are in our name and as such affect our DTI. We're "real estate investors" in that we have been lucky enough to buy primary residences in desirable locations with high rental demand and then keep them as rentals when we need to upgrade. My strategy hasn't been any more sophisticated than "rent out what I don't live in, and rent out what I do live in when I'm not there".

Even at 20% down, I feel like I'm going to be hard pressed to qualify for a mortgage in Santa Barbara given my DTI. I'd love to not sell the rental property, and am not willing to sell our current primary to get this done. I am very aware that I want my cake and to eat it too. All that said, I'm not sure how to approach the new purchase. Should I be shopping as if it will indeed be my primary? We work remotely and the two current assets are located in a state with much better tax implications, so I'm happy to keep Property 1 as our "primary" if that makes more sense. I also think it'll benefit me to get Property 2 off our personal books, probably best achieved with a refi/title transfer to an LLC? We have a fair bit of equity in Property 1, but I'm unsure how to best utilize a HELOC for something like this. Given the rate and term we have on Property 1, I'm loathe to consider a cash out refi on that property.

Open to all thoughts, strategies and questions other than "don't move to California". Thanks very much ahead of time, this is such a great community and the brain trust is impressive.