Newbie from Lexington, KY - not sure what to do with equity!

[Becca Young]

Hi!

My husband and I are business owners and our business is booming even in the pandemic. We decided to upgrade homes and we were able to put 20% cash down and get a 2.7% interest rate on a 30-year mortgage on a really beautiful home in Lexington, Kentucky, without even selling our current house first. We'll be closing on the new house in February. Our current house is in a nice neighborhood (95% owner live in, 5% rental) and we think our house is worth $320,000. We only paid $180,000 ten years ago (last time the market crashed), and we have about $90,000 left on the mortgage, so we're hoping to get about $230,000 in cash when we sell. 

We'll be putting the current house on the market in January. After we sell, we were planning to just put that cash towards the mortgage on the new home and re-casting the mortgage to get a lower monthly payment. But then I started reading that we can lower our business taxes by getting into real estate investment. 

My question is, is it the right decision to just pay down more of the mortgage on our new house with the proceeds from selling our first house? Or should we consider renting the current house (it's 2,500 square feet in a nice area, so maybe we could charge $1,500 per month?), or taking the money and buying one or two smaller homes in the same area and renting those? Or should we take part of the money and put it towards the new mortgage to lower our payment, and take the other part and invest in the stock market? We're a little awed by the influx of cash (and want to limit our tax liability next year). It's a delightful problem to have. What would you do in this situation?

Thank you!

Becca

[Andrew Kougl]

@Becca Young

I think it depends on your goals. Do you want to be real estate investors? Do you want to be landlords? Or are you only exploring this option because you have a windfall of cash?

What I wouldn't do it sink this money into your new primary residence. You qualified for your current mortgage and you should feel comfortable paying that each month. This additional money should be used to grow your wealth and if you put it into your new expensive house it's just trapped.