Larger down payment on a home or buy rental property? Investing

[Justin Flournoy]

Hello BiggerPockets,

Before I get to my question, here's my current background.

- 30M/27F (Me and my wife)

- No kids

- No debt (besides vehicles and house)

- I make 90k, wife makes 70k

- Combined income: 160k

- House value: 250k (when purchased, now worth 270k)

- Mortgage: 150k

- Equity: 105k

So with that, we are looking at selling our home and buying a 350k house and plan on having 2 kids within the next 5 years.

My question is this. Assuming I sell my house and break even, we will have $105k cash. Trying to decide if we put it all down on our 350k house, and have a lower mortgage payment -OR- put down 70k (20%) and then use the remaining 35k for a down payment on a 175k-200k home and rent that out?

If it helps, I have ~50k in my 401k and wife has ~15k (she just graduated last year so this is her first job).

We have 30k in our emergency fund.

I'm not wanting to dissect too much into retirement accounts, emergency funds, etc. We have those under control and are going to use each promotion to increase contributions until we can max them out. I'm more looking for advice on our housing situation.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-TLDR-

Purchase 350k house with 105k down payment OR Purchase 350k house with 70k down payment and use the remaining ~35k-40k as a down payment on a rental property?