Sell the rental property to buy a house?

[Rich Chen]

First post. We need some advice!

My wife and I have a condo in LA that has been paid off and used as rental property. We are renting in a nearby city with much better schools where our kids go to. The income from the rental offsets our rental.

Our property is worth about $600,000.

We want to move to a house with backyard and more space since our kids are much older and just started in middle school. The house in the area averages $1.2 million. Despite we are pre-approved for $700,000, we don’t have enough money for the down payment.

We do not want to sell our condo since it provides a good source of income. However, we don’t know how we would come up with the down-pay without selling it. We can probably take out some home equity but that would also reduce our loan amount. Can’t win.

On top of that, the current market situation is crazy! Low inventory, historically low interest rates, and Covid19, the house value went up over like 10%. Just perfect storm! It’s a great time to sell, but probably not a good to time to buy. But my wife and I didn’t want to wait for too long. The kids are growing bigger by the day.

What would you suggest in our situation? Should we sell or continue to rent or renting a bigger place instead? Any other options that we should look into?

Would really appreciate getting some advice about our situation!

[Stone Jin]

@Rich Chen how are you throwing it out the window?  You are paying for a service, similar to your cell phone bill, are you throwing away $200 dollars as well a month on that?   You could buy your own tower etc etc and technically own the service, but is it worth it?  Same with the house.  

As long as your deploy your capital in a way that is more effective than just paying a 3% loan, you will come out ahead at the end of the game.  Look at it this way, you only need an additional $2000 cashflow to live for free.  I don't know how much cash you have, but if you were to invest the down payment money into cashflow producing assets, could you generate $2000 a month?  If so that's likely a better use of capital.

There's a excerpt from Rich Dad Poor Dad where Kiyosaki wants to buy a sports car, instead he buys an apartment, the cashflow from the apartment pays for his car and when his car payment is over he owns the car and the cashflow.  The concept is similar for you I think, you can buy cashflow producing assets and it'll subsidize your lifestyle until one day you decide to move to a cheaper area to retire, then you will have the cashflow to supplement your retirement.

Hope this helps.  Renting may seem like just throwing money away, but you are actually getting a service that comes along with the house.  When the roof or ac breaks, it's not your problem.