First Home Sale, Time to Upgrade or Invest

[Shauna Mackenzie]

Hi All,

I appreciate this site and its forums and articles very much; my husband and I have learned much from all your valuable insight.

We purchased our first home in Napa, CA in March 2010 for $269,500. We purchased an investor flip with an FHA loan and paid slightly over market value at the time because all the other homes in our price range would not qualify for an FHA loan and cash buyers were snatching up all the inventory.

Fast forward to today: we have about $100K in equity in the home. Because we're paying about $215/month in PMI we feel we need to 'get out' as soon as possible as it's money down the drain. We were pre-approved this last week for $425,000. Provided our house sells for what we expect it to, we will be able to meet the down payment. In our area however no sellers are accepting contingent offers so we would have to sell our house, move into a rental, and then purchase our next property.

We are looking to make the best investment decision as real estate is our plan for retirement (I'm 32, husband is 42). I feel loathe to go down the traditional route as I feel there must be more creative/wiser ways to climb this ladder. As we see it, we feel we have the following options and would love everyone's thoughts and expertise.

#1 - Traditional - Now vs. next Spring/Summer
Sell our property now (summer), move into a rental, purchase our next property in the 'off-season', Oct-Nov. Our pre-approval was quoted with a 4.125% interest rate and there is an upswing in the market at the very moment, expected to drop back in the Fall. My husband prefers to continue making improvements and list next Spring/Summer when the market might not be so tight and we might be able to purchase our next home with the sale of our current home as a contingency. I personally don't think this aspect of the market is going to change by next Spring/Summer and the interest rates will have gone up. That said though, property values would continue to grow and we would realize those gains. So, now or later?

#2 - Leverage
It may be an option to hold onto our current house and leverage it to purchase another house to be used as a rental, or we use our current house as a rental. The cost of leveraging may be too expensive. Are there creative ways to do this and is it worth doing this while we're still paying PMI? We re-fi'd in 2012 so we have another 4 years minimum before we can lose the PMI.

We would really like to sell high right now and purchase a bank-owned or short sale but those are becoming less and less and much harder to get access to as investors swipe them all up immediately. I feel like we don't stand a chance, particularly given that our buying power is the equity of our house.

We do ultimately anticipate having multiple properties but right now we are building capital and that is our motivation.

Thank you so much for your insight.
Shauna