Investor · Jersey City, NJ · Member since 2016 · 84 posts · 11 votes
Trying to think through this on one of my rentals:
Current Market Value: ~$340K
Mortgage: ~$164K @ 3.75%
Rent: $1,750/month
Cash flow: ~$300/month
Property has appreciated a decent amount, but still cash flows. I’m debating whether it makes more sense to hold, pull equity out, or sell and redeploy. Curious what others would do in this situation.
Also happy to look at a couple other deals if anyone wants a second opinion, feel free to DM me. Thanks.
This is a good problem to have. Solid equity, positive cash flow, and a good loan.
The way I’d look at it is return on equity. You’ve got roughly $175K tied up and you’re making about $300/month, so your return on that equity is pretty low.
Holding is the safest move. You’ve got a sub-4% loan and it cash flows, so there’s nothing broken here. It’s just not very efficient.
I’d be careful with a cash-out refi. At today’s rates, you’re likely wiping out that $300/month and maybe going negative. That only makes sense if you have a really strong deal lined up where that capital clearly performs better.
Selling is the cleanest way to unlock the equity. If you can redeploy into something that gives you better cash flow or scale, that’s where it starts to make sense. If not, you’re better off just holding.
Personally, I wouldn’t refi this. I’d either hold it as a stable asset or sell if I had a clear next deal ready to go. The property itself is fine. The real question is whether that equity could be working harder somewhere else.
@Cesar S. It depends on your long term goals. Some investors chase door count and others don't. One is riskier than the other. What portfolio do you want to own in the next 10 yrs?
I don't know much about New Jersey but I know the pillars of wealth creation via REI. You're gaining more on paper with that property than most deals can generate today. Unless you're planning to jump into a BRRRR or flip, have an emergency, something negative in the market is coming, or you're burned out on rentals I don't see a reason to sell. A cash-out refinance doesn't make sense given rates are floating around 6%. Can you even replicate that deal at current rates and generate $300 per month in cash-flow? It's doubtful.
If you need funds shop lenders and pull a LOC on the property (or multiple properties), but stay cash-flow positive. There's strong economic and political signs that tell me to not be over leveraged in this market.
This is a good problem to have. Solid equity, positive cash flow, and a good loan.
The way I’d look at it is return on equity. You’ve got roughly $175K tied up and you’re making about $300/month, so your return on that equity is pretty low.
Holding is the safest move. You’ve got a sub-4% loan and it cash flows, so there’s nothing broken here. It’s just not very efficient.
I’d be careful with a cash-out refi. At today’s rates, you’re likely wiping out that $300/month and maybe going negative. That only makes sense if you have a really strong deal lined up where that capital clearly performs better.
Selling is the cleanest way to unlock the equity. If you can redeploy into something that gives you better cash flow or scale, that’s where it starts to make sense. If not, you’re better off just holding.
Personally, I wouldn’t refi this. I’d either hold it as a stable asset or sell if I had a clear next deal ready to go. The property itself is fine. The real question is whether that equity could be working harder somewhere else.
You have a nice performing property with greater than 50% equity. I get the want to access the equity. To me it cash flows today. Accessing the equity will likely create negative cash flow. I'm not sure if you could get a better return on your equity in another deal, unless of course you found a sweet BRRRR deal. For me, I would hold this as rents will increase annually and your tenants are taking care of the expenses with a few bucks in your pocket. In 5 years cash flow could potentially be $500. I think that's pretty solid and your current interest rate is fantastic.
Pierre nailed it on the return on equity -- you're looking at roughly 2% annual return on 75k in deployed capital. The loan rate being 3.75% is great for locked-in debt, but that doesn't tell you if you should keep the capital there.
I'd actually flip this around. Instead of asking "should I refi," ask "can I deploy 00-150k somewhere else and make more than 2% net?" If the answer is yes, then a refi conversation makes sense. If the answer is no -- maybe you're not finding deals right now, or your market is soft -- then holding it is perfectly fine. You own an appreciating asset with near-zero risk and a sub-4% fixed cost of capital.
The refi trap people fall into is this: they hit today's rates (likely 6.5-7% range), that 00/mo becomes negative or breaks even, and suddenly they've converted a cashflowing asset into a carry cost with the bet that values keep appreciating. That's not a bad bet, but it's a different bet than what you have now. If you're disciplined about deploying that 25k or so into something that returns 8%+ after all expenses, then refi to deploy. If you're not sure, keep the bird in hand.
What's the market looking like in your area right now -- are you seeing good deal flow for your next project?
This is a classic hold vs sell decision. A few numbers I'd run before deciding:
1. Current cash-on-cash return — are you beating a 5% money market?
2. DSCR at today's refi rates — if you refi at 7.5%, does the property still cash flow?
3. Total return projection over 5 more years vs deploying that equity elsewhere
The answer usually comes down to opportunity cost. If you can't find a better use for the equity, hold. If you have a deal lined up that beats your current CoC return, sell or refi.
I stress-test every hold/sell decision with 3 scenarios: base case, 10% rent decline, and rate increase to 8.5%.