Rent out my current home after moving?

[Kraig Krueger]

I've got a couple competing goals over the next couple of years and would like some advice.  My wife and I want to move to the other side of town in order to be in our chosen school district and we also want to begin purchasing rental properties.  We have considerable equity in our house and are trying to decide whether or not to keep our house as a rental.  We think it may be an easier entry into the rental market if we use the house we already live in as our first rental.  

a.  Purchase a new home for $400k in the district, keep our current house and rent it out.  We                  purchased it in 2012 for $270k.  We've put in $10k into it and it is now worth $340k.  It would              rent for $2,400/month.

b. Stay in our house for a few more years and buy rentals in other cities that have lower entry prices and higher ROI's. Later we can make the move to the other side of town.

When we do decide to move is it worth keeping our current home as a rental at all?  Or sell it and invest in lower end houses?  It doesn't currently meet the 1% rule, but realtor fees add up if we decide to sell it in order to purchase different houses. 

Also, is it worth purchasing further from home to get a better deal on the first property or is it better to purchase near home where I know the market better, but may not get as good of an ROI?

[Matthew Vitlin]

Technology has lessened the need to be able to go out and "touch" your property, but wherever you want to invest you need to be confident in your systems and the team you have set up to oversee the investments. If you are comfortable not needing to be near your properties, then you should go after the areas with the best cap rates to maximize your ROI. If you need to be close to your investments, then look for the best cap rates within a reasonable drive of you. This is countered by your desire to move into a better school district, which complicates the equation. Given that, I would say A is probably your best option to get the best of both worlds. You aren't hitting the 1% rule, but that isn't always practical depending on the market. As long as you are getting some solid cash flow on your rental that is as good a start as any.