1st Home Owner Occupied Duplex--What next?

[Paula Mason]

Hi everyone! I'd love to hear any advice from more experienced folks regarding my family's current real estate situation. My husband and I bought a duplex in 2017 for $205,000 in Milwaukee, and have about $164,000 left on the mortgage at a 4.25% interest rate. We live in the lower unit and rent the upper for $775, with a monthly mortgage payment of about $1300 (including escrow). We're thinking about buying a second house as our family is growing and we'd like more space, but are torn about keeping the duplex or not. It's been helpful to have the upper unit subsidize the mortgage, and we think we could rent the lower unit for $1200, which leave us with about $600-700 extra each month after paying the water utility.

The area we live in has been growing rapidly in the past 10-15 years as a hip neighborhood with rising property values. We'd like to buy another house in the area (either a single-family home or a larger, 3 bedroom duplex), but are not sure if the profit margin makes it worth keeping our current duplex or not. I think we could likely sell it for $220,000+ or more if we were to go that route, especially if we did a few little updates on the inside, but our initial thoughts are to keep the duplex as an investment and to have a bit of cash flow. The challenge would be to save again for another down payment for a house that will likely be pricier if it's bigger. Any thoughts or advice are greatly appreciated!