Help with home sales strategy - What would you do? need advice

[Annie Balagot]

Hi BiggerPockets pros, I need some advice on what i should do. 

We live in a very desirable town 30mins outside NYC with great schools. My primary home, if sold, is prob worth around $2M and we only have $700k mortgage so tons of equity not being used. We have a $500k HELOC currently @ 9% we haven't used. we recently renovated and expanded this house so our basis is prob $1.5M so we're hitting the home exclusion cap.

Potential to buy a new home in town (kids still need 4 more yrs before going to college) for $1.2M with some work needed and potential to expand a bit.

Thinking we should sell home, take $500k tax free, put down 20% on new home so paying more in total mnthly payments but mainly in interest. Use the remaining equity ($1M) to go invest in more rental properties.

Or, keep primary home which has a 2.75% ARM until 2030 (mortgage out til 2050). My mthly payments are only $6.5k but I could rent my house out for $10-12K/mth. Can't use bonus depreciation but could use accelerated depreciation and get most (not all) of my rental income tax free. I'll still have my HELOC but it's at 9% and only $500k vs $1M cash.

What would you do? Sell primary or rent it out? Oh, primary house is in a flood zone and we had a major incident during IDA but our house was raised so meant to deal with floods so no damage but more a pain in the *** so concerned about dealing with that with renters or if more climate issues happen, could impact future value of the home.

Would love any thoughts or ideas! Thanks!