Sale or cash out refi?

Question

Brant Richardson · Answer

What is the value of your property?  If it is a 100k property, with 70k of equity then a 80% refinance will give you 50k cash and will likely still cash flow.  If it is a 200k property, then a 80% refinance will only give you 30k cash and will be less likely to cash flow.

Justin B. · Answer

Ok, that was an important point to leave out :)  That changes things considerably.  Based on what you've laid out, I'd sell.  Tax free profit and super low commission + it would make the wife happy.  No brainer in my opinion.

Duncan Taylor · Answer

The two most important rules of being a husband...

• The wife is always right.
• If you ever think the wife is wrong, see rule number 1.

Seriously though, it does depend on a number of factors. The biggest thing to remember is you aren't going to get all of that $70K in equity in your hands no matter which way you go.

Justin B. · Answer

This is a great question.  There are several things to consider here:

-- How much time do you have (both in needing the money and in effort)?.  A sale will require more of your time and effort and there is no timeline (it could sell in 1 day or 1 year).  Without putting it on the market, you won't know.

-- How much money do you need?  Typically banks will re-finance 80%.  If you sell, you get 100% of the equity out (minus any commissions if you use an agent).

-- Is a 1031 exchange possible?  This would ensure you have no tax bill but the rules are tight and if you don't follow them to a T, it will be all for naught.  I'd say a 1031 is the only way I'd sell (for the reason of needing equity) only because chances are with depreciation recapture, you will most likely have a tax bill which could come close to equaling what you'd miss in a re-finance (especially if the appraisal is a large number above what you originally paid for it).

-- Your cash flow.  If Refinancing means you cash flow is wiped out or worse, negative, I might lean towards selling.  If you can Refi and take out say $50k, and raise rent a little and keep the same cash flow, I'd lean towards Refi.  Why get rid of a positively cash flowing property with great tenants if you don't have to.

Just based on what you're posted, if a Refi can get you the money you need and your cash flow is not affected (or just barely affected), I'd go with the Refi.