Sell or Cash out refi??? Please help!

4 Replies

Hi!  Need some help on a situation. I need some cash to buy additional rental properties.  I have one house that I bought 5 years ago for 85k and is now worth $245k.  The problem is that it rented for $1200 in 2011 and it rents for $1300 in 2016.  My question is, should I refinance it and take cash out or do I sell it?  Either way I would take the cash and invest in properties with a better price to rent ratio.  Thanks for taking the time to read this.

Erik

I would cashout and redeploy the equity and continue to build your asset portfolio and enjoy the appreciation when you can, the cash flow when you have it, and the depreciation when you have it.

Selling an asset to buy another one to me is like selling fish to buy worms to go fishing.

If I can assist, let me know.

@Erik Stern

Assuming if you can cash out for 70% of ARV, you're looking at a mortgage of $170K.

Your principal + interest payments per month is about $900. Plus taxes + insurance and everything else, you might be lucky to break even. 

I would sell it to capture the gains, and do a 1031 exchange if you can. 

On a side note, Seems like your rent is really low for your property value!

@Erik Stern , one way to look at it is that an 85K investment captured a 1200/mo return.  That's not too bad.  But an additional $160K investment (opportunity cost) is getting you $100/month.  That's no so good.

@Chris T. , is on to something with his comment.  The market is different yes.  But if you can find 3 of those $85K units that rent for the same then you can indeed 1031 and sell the one, buy three and increase your gross cash from 1300/mo - $3600/mo on the same $245K.  Question is has appreciation topped out for that unit and can you find the deals.

If you are a buy and hold investor...buy and hold.  If you are chasing cash flow, don't forget to calculate your 8-12% cost of sales into your numbers.

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