Sell & Downsize or Rent and pull out $$ for new primary home?

[Matt Silverstone]

What would you do in this scenario?

Helping a parent whose primary residence is paid off and has appreciated nicely in Southern California over the last 20 years. Looking to retire soon and downsize. Home is in a good market with public schools and high demand.

Option 1: Simply sell home, downsize and purchase a smaller home and invest spare cash (pros: hassle free and homes are getting top dollar in the area, cons: feels like there's a lot to be leveraged with the home and would be missing out on future appreciation to "keep property in the family")

Option 2: Rent the home and take HELOC or REFI to take out equity for smaller home purchase. (pros: cashflow from the rental + $$ to put into a new home., cons: the home would require some upgrades to appliances and backyard to get top rental dollar)

Leaning towards option 2 and like the idea of managing a property or two for steady cashflow. Also, don't mind spending the time and effort. Is there a better option people would suggest given the situation at a high level?