Young, FI, and wanting buy our next home...

[Mountainstaches]

My husband and I are in our 30s and have a small child, planning on at least one more. We are financially independent or pretty close to it due to an inheritance after the untimely death of a parent several years ago. Our stash supports our basic spending and on top of that, we own our home outright. No debt except a small HELOC. We've been following MMM and reading other FI blogs for about 2 years to try to make our best life possible out of an emotionally fraught windfall situation.

Here's our issue. We've lived in our home for about 6 years. It's beautiful but rural and isolating. We've discovered we're not the country mice we thought we were and we'd like to move about 2 hours away to a small city/ suburb. We'd be closer to some culture, family, and friends. We'd also be closer to more work opportunities. Even though we are FI, we like the option of padding our stash for more luxury spending and security. We also worry about fluctuating health care and education costs and want the option of hopping in and out of side gigs or more traditional employment as our situation and interests dictate.

So here are our questions:

1) Should we sell our home or turn it into a vacation rental?

 For emotional reasons we'd love to keep the house. We could make this more practical by covering most carrying costs by airbnbing it. We're in a good location for ski rentals and general tourism for most of the year and the property is appealing to vacation renters. We've looked into costs for property management locally, made a budget of our carrying costs and have had some experience and success as airbnb hosts. We would need to do some renovations to make the place optimal for renters. 

If we sold the house immediately we'd probably take at least a 15% loss (maybe more) because the local economy and real estate market are very sluggish. There's also the chance that even if we priced low the home would just sit on the market.

If we did sell the house, I worry about putting the value into index funds right before a market downturn. We're young enough that we could ride out this kind of timing but emotionally it would be no fun. I also worry about keeping the money from sale of the house out of the market while we figure out what to do in buying the next home. I know its impossible to time the market ....

2) If we keep our current home, can we consider using a HELOC on that home for down payment on a second home? If we could do this, then we wouldn't have to worry about taking money out of investments for a down payment right after a downturn.

3) When we think about buying the next primary residence, we'd like to be as financially prudent as possible. 

Part of our plan could be to get a two family home or a place with an in-law apartment and renting the other unit (either as a vacation rental or long-term rental). In the region we want to buy in, it would be hard to find a place that would follow the 1% rule. However, if we're going to buy anyway, could a 2 family still be a good strategy for us?

Facepunches, insights, other people's anecdotal experiences are all welcome.

Thanks!

[Mountainstaches]

Thanks Slow2Fire. The suggestion is helpful! So are the questions.

We do have some experience doing short-term rental in the area and local networks of cleaners, snowplowers, handy people but keeping the home as a rental would still be a lot of work! We recognize it would largely be an emotionally driven choice as second homes are often money pits. We'd be hoping to minimize the cost of continuing to own rather than using it as an "investment". If we ended up in over our heads, we could sell it down the line and eat the loss.

[AccidentalMiser]

Thanks Slow2Fire. The suggestion is helpful! So are the questions.

We do have some experience doing short-term rental in the area and local networks of cleaners, snowplowers, handy people but keeping the home as a rental would still be a lot of work! We recognize it would largely be an emotionally driven choice as second homes are often money pits. We'd be hoping to minimize the cost of continuing to own rather than using it as an "investment". If we ended up in over our heads, we could sell it down the line and eat the loss.

Keeping the house will limit the flexibility that you want.  You aren't happy with the house's location.  It was what you wanted at the time and now it doesn't work for you anymore.  I understand.  I've been there with an underwater house hours away wrestling with selling at a loss or renting it out to cover the expenses and continuing to hold while waiting for the market to recover. 

Something I do frequently is to ask myself, "Would I buy this house, in this place, at this time for market value?"  Not what I paid for it, mind you, but market value.  Once you move out, it's an investment property and it moves out of the "home" category and into the "generator of income (or loss)" category.  You MUST evaluate it on an INVESTMENT basis.  If it's not an investment you would undertake if you didn't already have it, factoring in your transaction costs and the value of your time, then it's a BAD investment for you and should be eliminated forthwith.

Good luck to you!!