Cash out refi v. sell primary residence to buy first rental prop

[Nicholas Fiore]

First post! I'm new to the forums and soaking up as much info as possible before jumping into my first rental property. I'm located in Chicago (East Lakeview) and purchased a HUD property in 2016 for around $110k, put in about $10k of my own cash into a new kitchen, hardwood floor refinish, etc. and upgraded the place. Similar properties in my building/area are now selling for $170-200k. I have about $90k left on a 30 yr. fixed rate loan (at 3.875%). I'm weighing my options on how to get into rental property investing and am stuck on what my first move should be.

On the one hand, I could take out $50k on a $140k cash out refi at 3.375% on a 30 year fixed loan with a local bank and my payments on the condo would stay about the same. I like the area and would be happy to continue living in the area, while I build my real estate portfolio. I would then use that $50k toward the downpayment on a rental property in the Chicagoland area and I could be flexible about where I hunt for deals in the surrounding area.

On the other hand, I could sell the property and use an FHA loan or other financing mechanism to do a house hack and purchase a 2-3 unit property. I assume I'd have around $80-90k that I could put toward such a unit. I'd be looking to live on Chicago's north side (Roscoe Village, Andersonville, Lakeview, Irving Park, Ukrainian Village, etc.) and it seems like 2-3 unit multifamily properties, even places that need a little work, range from $400-650k and up. It seems like I'd be doing pretty well if I found a situation where I'd live free (or very small cash flow if lucky) due to rental income from a property like this.

My gut tells me that the cash out refi would be the faster option for getting into the real estate investing game and makes sense due to ability to flexibly hunt for deals and not be tied to the areas I'd personally want to live in, but I'm curious if folks think I'm missing something or if there's another approach/strategy that you might recommend, questions to consider, etc.

Very grateful for any views on this.

Thanks!

Nick