Refi Cash Out or Keep Cash In?

[Manco Snead]

Greetings,

Fairly basic question but I'm having trouble weighing the two. I want to refi my non-owner occupied duplex for a lower rate.(Current rate: 4.25%. Would hope to get it down a full % point). It cash flows very well and am considering cash out when I refi, the money which would be used to buy another investment property. The duplex would still cash flow even after cash out. My objective with rentals is to quit the day job sooner than later. So if, for example, my duplex mortgage is increased by $200 after the cash out refi, but a new rental property, bought with cash out $, cash flows $200/month would it not be simpler to just keep the money in the original duplex?

Just wondering how people more experienced than I weigh these two approaches.

Much thanks.

[Brent Christensen]

I'm just getting back into real estate investing after a LONG hiatus (raising kids, putting them through college, demanding career, etc) so my thinking may be outdated, but in my opinion the biggest factor to consider is the appreciation rate for the new property.  You mention that you want to quit the day job soon, so you're probably focused on short term cash flow, but in the scenario you describe, the cash flow of the two options is the same.   In the second option (acquiring the second property) you also get the leverage (assuming you're not paying all cash) on the appreciation of that second property.  

Some example math:

Assume the property is $100,000 and you're putting $20k down.   If this sort of property in the area is appreciating at a rate of 5% annually you're controlling $5,000 a year of appreciation with an investment of $20,000.   Thats a 25% return on that investment in addition to the positive monthly cash flow.