Rent or Sell Dilemma

[GoalFI]

Hey guys, been lurking a while and decided to ask the MMM community what their thoughts are on this situation.

We own a house currently worth around $400k and we owe $275k on it. Current interest rate is 3.6% and we are currently working on refinancing to 2.75%. The break even is roughly 18 months for this if we go through with it with closing costs and it saves us 200/mo. We do skip 2 months mortgage, which I will likely just apply to the mortgage to wipe out the closing costs and give us the same 275k start.

We are looking to have a home built in a much more desirable school district down the road for our children in the spring. The rental market in my current area would conservatively allow us to rent at about a 6-700/mo profit after all costs figured in. The home has brand new A/C (full system) last year, brand new water heater 4 years ago, and a 50 year concrete tile roof (home built in early 2000's) so the only large expense item I can foresee would be the furnace, which I could feasibly replace myself as somewhat of a handy man who fixes 95% of the home related issues.

My thought process was a renter would essentially be paying 6-700/mo profit to me as well as about 500/mo in principle getting paid down at the same time. This also doesn't include the current equity still being available assuming the housing market doesn't crash and burn in my area (not likely, given tech growth).

I'm leaning heavily towards renting it as I believe it has a high probability of pushing us further on the FI journey. However I also have this nagging thought that if I cash it out now, i can pull out well over 100k tax free due to it being my primary residence for at least 2 of the last 5 years (as required by law) and stick that into a dividend yielding mutual fund for some nice returns over time without dealing with renters, or to put a big dent in the new house. If I turn it into a rental, after that 3 year mark capital gains becomes a thing unless I roll it into more properties which also reduces the benefit of the equity a bit.

Thoughts?

[affordablehousing]

Unless you're in a horrible place to live, most people on this forum expect you to get huge cashflow from proper "rental" properties and would recommend selling. I think you have a better gauge of the economic forces in your market and whether appreciation over the long run could be a helpful diversifying element. It also depends on the rest of your portfolio, whether you are having to finance home construction and the rest of your picture.

[srad]

Where are you getting a 2.75% Mortgage?

[GoalFI]

LoanDepot. It costs about 2k extra in closing costs to buy the points down from the flat 3%, but given a long term hold, it would end up positive. Probably helps both my wife and I have very high credit scores. We have another house we left out too because we're going to sell it as soon as possible but we have another rental at 2.75 that we've had about 7 years. That one was just builder financing though. We only rented it because we couldn't sell it over several months when we moved.

As an update, I started reading more about real estate and how to judge rentals and even though this rental could possibly cash flow 800/mo I realize it doesn't meet some of the criteria for a great investment which has prompted us to just sell it.