Help! How to fund the next property!

[Jenna Banaitis]

Hi all:

Would love some advice from you smart people!  My husband and I own two small multi families. We are looking for a 3rd to purchase with 20% conventional loan. We have the cash for that.  We are also looking to leverage one of the properties we currently own. We have come up with two options after speaking with loan officers, a QI and our agent.  Here are the options. Please tell me what you would do. 

Background: this property is a 2 family home with 11 garages on the property in which we rent out for storage. We have owned it for 22 years and have put lots of money into it to rehab it; but there are few problems with the property. 1. Due to the garages, it requires a commercial insurance policy, doubling what we would normally pay.  2.  It is a pain to snow plow; there is little space to push the snow and we have asked probably 10 different plow guys all who don't want to deal with it. Currently, we are paying the tenant to use our blower, but what if he moves? Then we are back to doing it ourselves which is a royal pain.  3.  The garage tenants are wonderful, but they are a different group of people. I take payment every three months and I have to text them when rent is due and then they show up with cash or a money order at my house. No one has a check book!  Would love to automate this somehow, just not sure if it's possible with this group.  The property cash flows about $1000/month and we owe $113K. It's worth about $350K.  Our agent already brought us a buyer for this price.  The buyers would be very flexible allowing for the 1031 exchange. 

My questions:

1. Would you re-fi the house w/ a cash out to buy another property? (we could lower rate from 4.125 to 3.875% and stay in a 15 year; we have about 11 years left.  OR....

2.  Would you 1031 the property to elevate some of the headache into a larger property or something that is less of a headache.  We could possibly re-fi this new property after a year or so to purchase another one if desired. 

Thoughts? Sorry for long post. Thanks! Jenna 

[Dave Foster]

@Jenna Banaitis, That return seems low for the equity and especially for the hassle. A refinance isn't going to reduce the hassle or make it perform better (although the lower interest rate would have a small impact). Seems that whether your priority is convenience or ROI that the sale of this property is the better answer. And unusual properties like this are almost always the first to head south in a correction.

But another option might be out there as well.  With $200K ish in equity you could split that into two different purchases.  That would let you take advantage of low financing right now and safe a possible refi later once rates have started to jump again.