Worth The Hassle? - Keeping First Home, Buying Second - Financing

[Mike Cavaluzzi]

I'm well-studied in this space and grew up in a family who was used to renting properties, but haven't pulled the trigger on anything until now. We bought our first home (a foreclosed, end-unit townhouse) at the bottom of the market in 2008, but are now looking to move into a new neighborhood that is more family-friendly.  Here is the summary of my situation that requires creative thought:

Location: DC Suburbs (Clifton, VA)

Original sale price: $300K

Original mortgage: $240K ($60K down)

Money spent rehabbing property since 2008: $70K

Total cash invested: $130K

Current sale price (based on comps): $430K

Amount owed on mortgage: $208K

Potential cash generated from sale: $($222K, not including transfer costs)

Estimated Monthly Rent: $2,200

Current Monthly Payment for M/T/I: $1,300 

*Biggest yard and likely one of the most updated homes in a desirable community where "average days to sell" is less than 14.

Now the issues:

• Need $100K-$150K out of the house (or via investment) in order to put down-payment on next home, which will be primary residence (probably a $600K home).
• I've plugged numbers into every rent-or-sell calculator out there, but always feel like I'm missing something big. Nevertheless, if I plan to hold for at least 10 years, general consensus is to hold it. 
  • I'm being conservative by assuming minimal depreciation (1-2%) in a neighborhood that is desirable today in a great school district that is walkable to shopping center with a supermarket, restaurants.
• Current income dictates that an appropriate out of pocket cost for next house should less than $3K per month.

Possible solutions:

• Take out second mortgage/HELOC to get the $100K I need to buy the next house? Will bump me above my desired $3K/month housing allowance
• Bring in a partner to "buy out" part of my equity in the existing home, which presents a whole separate list of questions:
  • What should the terms look like? Do they get an even split of any proceeds from a future sale? Should there be some sort of sliding scale based on how long they co-own it with me?
  • Am I being foolish to try and protect the equity (from appreciation) and should I instead focus on protecting the $160K in hard dollars I've invested in the property to date ($60K down payment, $70K in rehab, $30K mortgage principle)?
• Just sell and move on.

While I certainly want to make money on this home, my ultimate goal is to NOT have it cost me money to hold, while keeping it as part of a diversified investment portfolio.

Did I leave anything critical out of the equation?