Should I sell or turn primary residence into rental? Refinance?

[Rachel Deering]

I need help! Ready to get started investing in both flips and rentals. However, we have about $100,000 of debt in Parent Plus and other student loans ranging from 4% - 8% COMPOUND interest rates. Our house is worth about $400,000 - $420,000 and we owe $185,000 (4.12%) - most equity is due to rapid appreciation over the last 5 years or so. We've had it on the market since the end of July and market is slow now and we don't want to keep reducing price. The goal was to sell, pay off the mortgage & debt, then have about $70,000 left over with which to buy another primary residence (smaller and cheaper), using about $25,000 for down payment, and then use the rest to purchase rental which would require 20% down, right.

Then, I started thinking....if we could either refinance or get a HELOC or home equity loan, we could re-structure that student loan debt stopping the compound interest and getting a lower interest rate altogether, stay in our home and then, in the new year, make this house the rental (without having to put 20% down as investment because we would already have the loan) and purchase a NEW primary residence with only 3 - 5% down. We would then have kept a great home that has been fixed up, that we know inside and out, the neighborhood, etc..., would still have over $100,000 equity in it and wouldn't have been able to purchase as an investment rental with the proceeds from the planned sale. Still follow me? Our current mortgage is $1670. The house would probably rent for $2500 - $2700 per month. If we get HELOC or cash out refinance, we could have a total debt payment of maybe $2200 a month or less, rather than $2600 a month, with lower interest rate.

Does this make more sense than selling and paying off the debt, since we want to have a rental property anyway?

With a cash-out refi, our interest rate would not be much lower than the 4.12% we have now, plus there are about $3000 of closing costs. Does that make a HELOC or home equity loan a better choice for paying off the student loan debt?

Is it correct for me to think of this as a way to eliminate the cost, time and potential headache involved in selling this house and ultimately purchasing and fixing up another rental property, by considering that the expected profit of the sale ($70,000) is functioning as a down payment on a $420,000 rental home (the one we already own!) ?

What am I missing?