Sell Cheap Home to Rent Again?

I’ll [30m] try to keep this as short as I can, but I’m trying to get all the information in. Thank you for reading if you do.

I’ve been mulling over this for a long time and could use some advice. I was lucky enough to purchase a nice house in 2021 with a mortgage of around $1,800/mo in a suburb outside a MCOL city (Providence, RI). I work remotely out of a big city and make extremely good money for where I live. I’ve spent a lot of time (and money) renovating my 1990’s era home, which is easily at this point the most expensive home in the neighborhood. It has largely been a labor of love and I enjoy home improvement projects.

Oddly enough, I also met my girlfriend (who is also a remote worker) around the same time, and we have been together almost 1.5 years. I can’t imagine a future without her. But, she is almost 2 hours away in a different state/area, so over the past few years we’ve been alternating spending weekdays or a weekend up at her place (she still lives at home with her family), or at my place.

We have discussed moving in together, but neither of us really want to live long-term in my area. It’s fairly nice, and “up-and-coming”/”rapidly gentrifying”, but we have had our eyes set on eventually moving in together for some time now, and preferably nearer to her family for family planning reasons among other things. I’m very excited about this because her area is very nice. Unfortunately, it’s VHCOL EDIT: HCOL(?) – Southern New Hampshire, and homes half the size of my current house go for 50% more than my home is worth these days. For reference my home would likely appraise at $400k, and shitboxes in our target VHCOL area go for $600k. To get something like I have now would cost us $750k. Add in the 7% rates and things become very difficult to stomach.

Neither of us have enough savings to be able to buy something in HCOL right now, and we are both pretty early in our careers. (Also I wouldn’t want to buy a home together unless married…) So, a plan has been forming for me to finish the fixup of my property this year, and list it for sale next Spring, and then we would find a place to rent in our target HCOL area in order to live there and see if we want to settle there more longterm. Portability is important to us right now, because maybe we don’t like that area and want to try somewhere else. But, we have been up there a number of times on staycations and weekends and find it really nice.

I’ve run a deep financial analysis of our situation and even with a good amount of lifestyle spending, we should be able to put away ~$80k a year towards a future home purchase. With the sale of my current home next year, other savings/investments, and our combined savings rate towards this goal, we should be able to have ~$300k for a home purchase in 2-3 years.

I feel like I’m in a nasty predicament though because whatever happens will require huge sums of money being lost. Rent for a comparable place to my house would be $3,500 a month in HCOL area. Even if we downsize it will still cost us $3,000/mo.

My parents are vehemently against this plan and think that it’s financial suicide, but the health of my relationship is at stake. I also don’t really want to live in this town anymore, and my girlfriend especially doesn’t. It’s putting a huge strain on our relationship that we have to keep going back and forth to see each other. I think the plan of selling my house and going back to renting would be OK even at higher price points because our 2 incomes would be going towards housing instead of just my 1. I shouldn’t actually feel much of a difference in housing cost when we split the bills 50/50. But it’s so hard to justify spending $3,500/mo. on renting a place that’s less-equipped than my current home at $1,800, the only difference being my house is in a less-than-ideal location for the both of us.

My parents think my girlfriend should move in with me and start splitting costs in my current house, then we can travel and explore areas we would want to move to while saving a ton of money in the process. We could also live together for the first time, and that could be a useful experience for both of us longterm. This plan might work, but there’s also an opportunity cost associated with living/staying somewhere we don’t want really to be which makes this plan seem less desirable and could potentially lead to worse outcomes for our relationship. I want what’s best for the both of us, of course.

I’ve seriously considered renting out my current home out instead of selling, with or without property management, but am very skeptical that I could be cash-flow positive in my area’s current rental market. Also I wouldn’t be able to do that for very long before losing the tax-free capital gains benefit at sale (<3 years). Also I have tenancy concerns; the thought of a bad tenant trashing the home that I’ve spent so much time on renovating makes me ill.

Has anyone else been in a similar circumstance, and if not, what would you do if you were me?

If I sell now and we try to buy together in 2-3 years assuming our projected savings, will we get priced out of the housing market?