Cash out refi dilemma or sell Apple stock

17 Replies

I'm looking at my fourth purchase/investment property, a small single family home located on St. Simons Island, GA, I have a rental townhome in Alexandria, VA owing only 93K. The Alexandria townhomes, like mine, currently are selling for 400-410K. I have excellent credit, have three townhomes fully rented long term. Trying to decide if I should sell enough Apple stock for 15-20% down on the new property or do a cash-out refi on the Alexandria property. Thoughts?

@Jeff Fountain Cash out would be good option if you want to use funds right away which you will cash out otherwise paying mortgage on something which you are not using won't be worth. HELOC would be good option or your stock.

I would try to do the refi if you can, depending on costs. If you sell the apple stock that is a taxable event so you will have to pay taxes on the gains. You can look at the pros and cons and determine if the taxes are less than or greater than the cost to do a cash out refi. 

If you have dead equity it is likely eating all of your cash flow. Based on the opportunity value of cash it is costing you $2 for every $1 it generates. You are losing money not making money. Pull your equity and invest it by spreading it around as minimum DP on as many income properties as possible. You need to find properties that will produce positive cash flow without having to buy it with your own cash. You need to purchase properties that are capable of producing positive cash flow with a hypothetical 100% financing. If these properties are not available you would be better off parking your cash in REITs or some other form of income funds producing higher returns. Dead equity is only saving the cost of a mortgage at 5% and is not a worthwhile investment.

So here is a bit more follow up. The cash out refi would run me 5.375% and approx 5K in closing which can be wrapped in the new 30 year mortgage. I can walk away with 70% value of the home. Any follow up comments are still welcome. I value your insight. 

There is something sound about knowing I have the townhome almost completely paid for. It's hard for me to warm up to the new 30 year cash out refi mortgage but sounds like everyone seems to think that is the way to go.

HELOC is the best option vs selling stock or cash out refi, in my opinion. Talk to a lender to discuss terms for cash out and HELOCs, it will provide better insight.

Last option is to just save the cash or sell the Porsche 😀.

@Jeff Fountain

I'm with the others here and would look to do the cash-refi.  You say that the cash refi would run you about 5.375% and although the rate is "higher" compared to what we've seen the last few years, it's still relatively low.  I have read that many investors once had mortgages of 8%, 10% or even higher.  

My thought process is in our current environment where rates are constantly going up and will most likely continue to climb, lock up as many great deals as possible.  Buy and hold is more of a long term strategy and in a few years time things might not make as much sense given the higher interest rates.  At the end of the day though, make sure your numbers make sense which I'm sure you're fully aware of.  Best of luck!

Dead equity is doing nothing to increase your income. You must leverage to maximise returns. If your money is not working for you there is not much point in just having it sitting around doing nothing. You worked for it now make it work for you. That is how wealth is created. Hoarding cash serves no purpose till you die and your children squander it away.

@Thomas S. Great point about not having equity work for you and it has taken some time for me to grasp the concept. 

Can you explain why increasing debt/mortgage (Cash-out) that will ultimately decrease your cash flow in that unit is better than just letting that equity sit to obtaining a higher cash flow from rent?  

From my understanding, using leverage decreases your cash flow but expands your portfolio. Please educated me being that I am a rookie at all this.

I have an option to do a full cash out refi or partial cash out refi.  Here are the numbers with my particular situation but first my question. Which one? ....all based on 400K value and also taking into account receiving 70% of total value for each option. 

On the property that I am considering for a cash-out refi, I pay $1638. Taxes, Insurance, HOA, P&I. I receive $2200 monthly rental and have been now for about three years. It stays rented. I could do a partial taking $153K for 30 years @ 5.375% plus 5K for closing costs. The partial would pay off the 93K, current left owing and give me the $60k for the down payment on the investment. Nothing out of pocket. New mortgage payment with taxes, insurance, HOA would be approx $1400. Leaving approx $800 which I would throw toward the principal. This option leaves me about $247K equity still in the place.

Or option two - full cash out refi. Mortgage would be $280K, 93K for payoff on the original, 60K for downpayment on the new investment and walk with $127K in pocket. The new monthly payment for 30 years would be approx $2085, everything. Remember I am collecting  $2200 monthly rent. This option leaves me about $120 equity remaining.

I am more comfortable with option #1.

Please weigh in with your comments.

@Jeff Fountain Alexandria is a great area for appreciation. I am pretty sure cash flow is much better in the Savanah GA Area. If you are banking on future appreciation, cash out refi is a good strategy. If you want better cash flow, I would sell the townhome, and buy an apartment building in GA that you can add value to as well as cash flow better.

@Anthony Dooley Certainly makes sense, I just have to muster up the bravery to go the apartment building route. Not that it is out of the picture. My end goal is to create as much passive income as possible. Like all of us, I want to build wealth but smartly. Thanks for your feedback. I love this forum with everyone's input. Very professional.

@Jeff Fountain from what you stated, you have enough equity to easily get into an apartment building in GA around the million dollar price range. The problem is very low inventory. If you sell the property in VA, you could 1031 a 32 unit deal. Maybe look in SC and NC as well. Good luck.

@Anthony Dooley you certainly have my wheels turning. I actually had not thought of that but makes perfect sense. I would have a lot to learn about the management side of an apartment building.