Cash out refi vs 1031 exchange

[Lincoln Decklever]

Hello! I'm a side hustle investor of 5 single family homes (SFH). I created an LLC with 3 partners 5 years ago with the intent of buying 1 SFH a year for 5 years as buy & holds, with traditional commercial loans. After 5 years/properties, we plan on reassessing where we're at & what to do next. Well, we're there. We just completed our 5th purchase, which is now rented. We'd like to continue acquiring properties, & recognize we have quite a bit of equity in our 1st 3 properties we purchased due to timing & buying below market value. I'm curious if you all would recommend doing a cash-out refi on one of those properties to use as a down payment on another property, or if you would 1031 exchange into something else (multifamily, nicer property, etc.). 

Thank you.

[Dave Foster]

@Lincoln Decklever, This is an apples to oranges question that doesn't get at the heart.  There's a why question behind it.  Why sell the property now.  You don't have to sell it to get money out.  You can refi.  So go deeper and ask why sell a property?

1. Is one underperforming? - A refi will never make a marginal performer perform better

2. Looming cap ex

3. opportunity to buy better cash flow without sacrificing equity 

4. desire to change geographies or classes of real estate

5. The need for 100% of the equity from a sale and 1031 rather than 75% of the equity in a refi.

These are all reasons to sell and 1031.  

If you like the property.  If it will continue to perform.  If there's no reason to sell.  If a refi alone will strengthen your position overall - then a refi is the way to go and keep that property in your stable.