Hi everyone! I’d really appreciate your advice on a real estate decision my wife and I are grappling with. Here’s the situation: We’re a family of four (two kids—2 years and 2 months old) living in Southern California. We’re currently renting an apartment, but we’re looking to buy a home in a good area to raise our children. Long-term, our dream is to retire in a small place by the beach, but right now, we’re focused on creating a stable home for our family. Here’s the twist: I own a rental property, a duplex in a not-so-great area, that cash flows $500/month. I’ve had it for 8 years, and it’s been a solid investment. Our household income is $250k, and we’ve saved $200k for a down payment. If I sell the duplex, I’d net around $200k, giving us $400k total for a down payment on a nice home. Here’s where I’m stuck: 1. Option 1: Sell the duplex and use the proceeds with our savings to put a large down payment on a house in a nice area, reducing our mortgage and securing a better lifestyle now. 2. Option 2: Keep the duplex as a long-term investment, buy a smaller home with our savings, and continue letting the rental cash flow. The idea is that the rental would eventually be paid off and provide additional retirement income. In 30 years, the plan is to sell the house we raise our kids in and downsize to a beach house for retirement. What makes the most sense? Should I take the safer route now and sell the duplex, or stick with the original plan and focus on building wealth through real estate? I’d love to hear your thoughts, especially if you’ve been in a similar situation!
What’s your idea of a nice area? Mission Viejo, Lake Forest? A $200k down on a $1M house would mean a pretty high payment. $400k would obviously lower it, even less with a 2/1 buydown. Be careful where you look; anything in a small fire hazard area may have insurance problems in the future.
Buy a smaller home and take it slow. Don’t give up an income-producing asset unless the deal is too good to pass on. Depending on where in SoCal you’d plan to reside makes all the difference.
Don’t forget taxes and realtor fees on the rental when you sell! You might not net that $200k. I’m in the same boat and am leaning toward selling my rental for a higher down payment given the market.
Look at the prices in the areas you want to buy in and do the math for the $200k vs. $400k down payment to see the difference in monthly payments. Keeping your rental could be beneficial if you have a low rate on it.
You’ve got to think about your long-term goals too. If the rental is a solid cash flow, keeping it might help you more in the long run. Just something to consider.