Should I fund a move by borrowing or selling other property assets?
"When you compare the costs of paying your current mortgage with the rental income from the flat, you're not really comparing like with like. Firstly, the mortgage payments are covering both interest and capital repayments, so some of the 8k is money that is adding to your net worth. Secondly, the value of the flat (130k) is much more than the outstanding mortgage (80k) so if you did sell the flat and pay off the mortgage, you'd have 50k left in cash that could be invested to provide an income. The right way to compare the two options is to look at the different costs in each scenario. Let's assume the bigger house will cost 425k as it makes the figures work out nicely. If you buy the bigger house with a bigger mortgage, you will need to borrow 50k more so will end up with a mortgage of 130k, and you will still have the 8k/year from the flat. Depending on your other income, you might have to pay tax on the 8k/year - e.g. at 40% if you're a higher-rate taxpayer, leaving you with 4.8k/year. If you sell the flat, you'll have no mortgage repayments to make and no income from the flat. You'll be able to exactly buy the new house outright with the 50k left over after you repay the mortgage, on top of your old house. You'd also have to pay some costs to sell the flat that you wouldn't have to with the bigger mortgage, but you'd save on the costs of getting a new mortgage. They probably aren't the same, but let's simplify and assume they are. If anything the costs of selling the flat are likely to be higher than the mortgage costs. Viewed like that, you should look at the actual costs to you of having a 130k mortgage, and how much of that would be interest. Given that you'll be remortgaging, at current mortgage rates, I'd expect interest would only be 2-3%, i.e around 2.5k - 4k, so significantly less than the income from the flat even after tax. The total payment would be more because of capital repayment, but you could easily afford the cashflow difference. You can vary the term of the mortgage to control how much the capital repayment is, and you should easily be able to get a 130k mortgage on a 425k house with a very good deal. So if your figure of 8k rent is accurate (considering void periods, costs of upkeep etc), then I think it easily makes sense to get the bigger house with the bigger mortgage. Given the tax impact (which was pointed out in a comment), a third strategy may be even better: keep the flat, but take out a mortgage on it in exchange for a reduced mortgage on your main house. The reason for doing it that way is that you get some tax relief on the mortgage costs on an investment property as long as the income from that property is higher than the costs, whereas you don't on your primary residence. The tax relief used to just be at the same tax rate you were paying on the rental income, i.e. you could subtract the mortgage costs from the rental income when calculating tax. It's gradually being reduced so it's just basic rate tax relief (20%) even if you pay higher-rate tax, but it still could save you some money. You'd need to look at the different mortgage costs carefully, as ""buy-to-let"" mortgages often have higher interest rates." "that would deprive me of the rental income from the property. Yes, but you'd gain by not paying the interest on your other mortgage.  So your net loss (or gain) is the rental income minus the interest you're paying on your home.  From a cash flow perspective, you'd gain the difference between the rental income and your total payment. Any excess proceeds from selling the flat and paying off the mortgage could be saved and use later to buy another rental for ""retirement income"".  Or just invest in a retirement account and leave it alone.  Selling the flat also gets rid of any extra time spent managing the property. If you keep the flat, you'll need a mortgage of 105K to 150K plus closing costs depending on the cost of the house you buy, so your mortgage payment will increase by 25%-100%. My fist choice would be to sell the flat and buy your new house debt-free (or with a very small mortgage).  You're only making 6% on it, and your mortgage payment is going to be higher since you'll need to borrow about 160k if you want to keep the flat and buy a $450K house, so you're no longer cash-flow neutral. Then start saving like mad for a different rental property, or in non-real estate retirement investments." It depends what rate mortgage you can get for any extra loans...  If you remortgage you are likely to get a rate of 3.5-4%... depending who you go with. With deposit accounts in the UK maying around 1% (yes, you can get more by tying it up for longer but not a huge amount more) clearly you're better off not having a mortgage rather than money in the bank. Does your 8k income allow for tax? If it does, you are getting 6% return on the money tied up in the flat. If you are getting 6% after tax on the invested money, that's way better than you would get on any left over cash paid into an investment. Borrowing money on a mortgage would cost you less than 6%... so you are better off borrowing rather than selling the flat. If you are getting 6% before tax... depending on your tax rate... it probably makes very little difference. You'd need to work out how much an extra 80k mortgage would cost you, how much the 50k on deposit would earn you and how much you make after tax. There is a different route. Set up a mortgage on the rental flat. You can claim the interest payment off the flat's income... reduce your tax bill so the effective mortgage rate on the flat would be less than what you could get with a mortgage on the new house. Use the money from the flat's mortgage to finance the difference in house price. In fact from a tax view, you may be better off having a mortgage free house and maxing out the mortgage on the flat so you can write off as much as possible against your tax bill. All of the above assume ... that the flat is rented all the time. The odd dry spell on the flat could influence the sums a lot. All of the above assume that  your cash flow works whichever route you choose. As no-one on stack exchange has all of the numbers for your specific circumstances it may be worth talking to a tax accountant. They could advise you properly, knowing the numbers, which makes the best sense for you in terms of overall cost, cash flow, risk and so on. It is a lot easier to make money when you are not in debt. If you can sell the apartment, get rid of your existing mortgage and buy the new house outright, that is probably the best course of action.
I wouldn't like to say either way what you should do, not being an financial advisor or lawyer, but I did find an interesting article on nytimes.com: Walk Away From Your Mortgage!  that you might also find helpful to frame your decision. It has some interesting information on defaults, it says this: Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them. In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare. And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis. The 20%+ returns you have observed in the mutual funds are not free money.  They are compensation for the risk associated with owning those funds.  Given the extraordinarily high returns you are seeing I would expect extremely high risk.  This means there is a good possibility of extreme losses at some point.  By putting a lot of money in those mutual funds you are taking a gamble that may or may not pay off. Assuming what your friend is paying you for rent is fair, you are not losing money on your house relative to the market.  You are earning less because you are invested in a less risky asset.  If you want a higher return, you should borrow some money (or sell your house) and invest in the market.  You may make more money that way. But if you do that, you will have a larger chance of losing a lot of money at some point.  That's the way risk works.  No one can promise a 20% return on a risky asset, they can only hint that it may do in the future what it did in the past. A reasonable approach to investment is to get invested in lots of different things: stocks, bonds, real estate.  If you are afraid of risk and willing to earn less, keep more money in safe assets.  If you are willing to take big risks in exchange for the possibility of high returns, move more assets into risky stuff.  If you want extreme returns and are willing to take extreme risk, borrow and use the money to invest in risky assets. As you look over investment options, remember that anything that pays high returns most likely has high risk as well. "There are more than a few different ways to consider why someone may have a transaction in the stock market: Employee stock options - If part of my compensation comes from having options that vest over time, I may well sell shares at various points because I don't want so much of my new worth tied up in one company stock. Thus, some transactions may happen from people cashing out stock options. Shorting stocks - This is where one would sell borrowed stock that then gets replaced later. Thus, one could reverse the traditional buy and sell order in which case the buy is done to close the position rather than open one. Convertible debt - Some companies may have debt that come with warrants or options that allow the holder to acquire shares at a specific price. This would be similar to 1 in some ways though the holder may be a mutual fund or company in some cases. There is also some people that may seek high-yield stocks and want an income stream from the stock while others may just want capital appreciation and like stocks that may not pay dividends(Berkshire Hathaway being the classic example here). Others may be traders believing the stock will move one way or another in the short-term and want to profit from that. So, thus the stock market isn't necessarily as simple as you state initially. A terrorist attack may impact stocks in a couple ways to consider: Liquidity - In the case of the attacks of 9/11, the stock market was closed for a number of days which meant people couldn't trade to convert shares to cash or cash to shares. Thus, some people may pull out of the market out of fear of their money being ""locked up"" when they need to access it. If someone is retired and expects to get $x/quarter from their stocks and it appears that that may be in jeopardy, it could cause one to shift their asset allocation. Future profits - Some companies may have costs to rebuild offices and other losses that could put a temporary dent in profits. If there is a company that makes widgets and the factory is attacked, the company may have to stop making widgets for a while which would impact earnings, no? There can also be the perception that an attack is ""just the beginning"" and one could extrapolate out more attacks that may affect broader areas. Sometimes what recently happens with the stock market is expected to continue that can be dangerous as some people may believe the market has to continue like the recent past as that is how they think the future will be." "There are five main drivers to real estate returns: Income (cash flow from rental payments); Depreciation (as an expense that can be used to reduce taxes); Equity (the gradual paydown of the mortgage the increases underlying equity in the property); Appreciation (any increase in the overall value of the property); Leverage (the impact of debt financing on the deal, increasing the effective ""cash-on-cash"" return). (Asset Rover has a detailed walk-through of the components, and a useful comparison to stocks) So interest rates are certainly a component (as they increase the expenses), but they are just one factor. Depending on a particular market's conditions, appreciation or rent increases could offset or (exceed) any increase in the interest expense. My own experience is mostly with non-listed REITs (including Reg A+ investments like the ones from Fundrise) and commercial syndicates, and for right now in both cases there's plenty of capital chasing yield to go around (and in fact competition among new funding sources like Reg D and Reg A+ platforms seems to be driving down borrowing rates as platforms compete both for borrowers and for investors). Personally I pay more attention to where each local market (and the broader national market) is along the ~18-year real estate cycle (spoiler: the last trough was 2008...). Dividend Capital puts out a quarterly report that's super useful." A short sale will be pretty bad for your credit report. It will linger for 7 years.  This may ruin your opportunity to buy in the new area. On the other hand you need to run the numbers, the last I looked into this, the bank will look at rent and discount it by 25%. So the shortfall of $800/mo (after adjustment) will reduce your borrowing power if you rent it out.  In general this is the idea. You rent for a year, and buy into the new area. If you short sell after this, while your credit is trashed, you still have your new home, and $50K less debt.  (Disclaimer - There are those who question the ethics of this, a willing short sale. I am offering a purely business answer and making no judgment either way. I owed $90K on a condo where others were selling for $20K. I paid until it came up enough that a lump sum got me out upon sale. The bank got its money in full)  An article on the differences between foreclosure and short sale. You should constantly look at your investment portfolio and sell based on future outlook. Don't get emotional. Selling a portfolio of stocks at once without a real reason is foolish.  If you have a stock that's up, and circumstances make you think it's going to go up further, hold it. If prospects are not so good, sell it. Also, you don't have to buy or sell everything at once. If you've made money on a stock and want to realize those gains, sell blocks as it goes up. Stay diversified, monitor your portfolio every week and keep a reserve of cash to use when opportunity strikes. If you have more stocks or funds than you can keep current on every week, you should consolidate your positions over time. You may be in a situation where buying is preferred, especially because you can enter the market in a strong position - with a 20% down payment.  If you have the financial ability to assume the risk of owning, you may be better off.  I would consider two things.  Renting is purchasing a service. You are buying the flexibility to move with minimum hassle and the landlord is assuming the risk of owning the asset (property). They will make money on you, like any service provider. Buying is purchasing an asset. You are buying the underlying asset and assume all the risks associated with it. This is large, unforeseen maintenance, fees, taxes, depreciation, etc... Some of these risks were passed to you as a renter, but some were not.  Just like purchasing $400k in stock, if you have to sell when the market is down, you lose big. You win if you can hold. Unlike a stock, real estate will eat your cash in taxes and repairs unless it is rented. If you are willing to be a long-distance landlord, this may work out. Understand that property management fees will eat into your rent income and being long-distance will give more potential for a bad tenant to ruin your property value. These and other factors (e.g. vacancy rate) will increase your risk of loss and should be considered. Some of this will be your preference, since you will spend much more time dealing with buying/selling/property management as opposed to a more clean rental situation. Is this hassle worth the savings? For many, yes; others, no. Finally, I hope this calculator can help clarify some of the financial aspects for you.  http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 Good Luck! "I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called ""hard money"" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement."