[briandear]

You get a property manager. The net cash flow is going to be much higher than the mortgage payment and the tenants pay the mortgage. Or, if it’s paid for, you do the same thing except cash out equity, let the tenants pay the equity loan, use that loan to buy the house you want to live in, take a deduction on the interest and you end up with two houses — both paid for by someone else and with a property manager you don’t have to fix toilets. Since you aren’t selling anything, you have no cap gains AND you can deduct depreciation from the rental income which means you end up paying no taxes on the rental income. With Valley housing in short supply you probably have at most an average on 1 month per year of vacancy — if that.

Then if you ultimately sell both houses, you can do a 1031 exchange and invest all of the proceeds into a new house — and defer the cap gains until you sell that.

These problems aren’t that hard unless you look at them from a single direction.