Should I sell or cash out refi?

[Brad Hunton]

I have the opportunity to buy three good cash flowing properties in a stable, steady growth area.

My question is should I sell one of my rentals that has been a pain but has all the bugs worked or should I cash out refi this and another property and buy the three new ones.

I did refi these two when rates were really low (3.1% and 3.3%) but never took equity out. Cash flow and equity would take a hit if I refinanced now but I would still come out way ahead on the purchase of the three new ones.

What would some of the more experienced investors do in my position?

[Dave Foster]

@Brad Hunton,  $13K in closing costs hurts!  That's almost like paying tax.  Why not try a hybrid approach I call defensive investing.  Sell and do the 1031.  But buy one of those properties in cash.  Use as little leverage as you can for one. And use maximum leverage for the third.  You can allocate your 1031 proceeds any way you want.

If you do this you have one free and clear house (no loan costs). It has no risk to you because no debt. But it's equity is there if you want to use it down the road to cash out whenever and buy another property. Your second property has modest debt So it's cash return will be less but ROI higher. And your last property will have the highest ROI but shed the least amount of cash.

You shelter a property against a downturn. You get the improved ROI from debt. And you lower transaction costs while still using the 1031 to access 100%of your equity.