Cash-out Refi or Sell?

[Daniel Han]

Hello BP community.  I've been mulling over whether to do a cash-out Refi or to sell my rental property.

Currently residing in Northern VA, rental property is in West Texas (El Paso). Rental property was my primary residence until I relocated to NoVA last year. I'd like to have some cash readily available to eventually buy a primary residence (using the VA loan) in NoVA that I can house hack, or invest in 1-2 rental properties out of state in an area more favorable for cash flow, appreciation (midwest, or south). Property taxes in El Paso are really high (~2.8-3%) and with home values going up, this would result in higher taxes eating into my monthly mortgage/cash flow. Part of me also wonders if the home value will continue to remain as high, or drop in a few years (4-7) when I originally plan to sell.

Property value: ~280k; currently have ~100k in equity.

Current mortgage: 173k remaining on a 30yr fixed @ 2.75% (VA loan); 1360/mo (PITI)

Rent: 1800 (looking to increase rent when current lease expires); comps in area are 1950-2300

Monthly expenses: 250

Original down pmt and cash put into the property: 28k

If I refi, I'd refi to 200k (70% of property value), for a 30yr fixed @ 4.6%. This would put my new mortgage at ~1660/mo (PITI) and provide a cash out of ~23k.

Selling the rental property would reinstate my full VA entitlement (970k) to use here in NoVA for my next primary residence; if I went with a cash-out refi, remaining VA entitlement to use would be ~790k.

Should I sell now while prices are high, or do a cash-out refi and sell later (4-7 yrs)? Or just keep the rental with the low rate?

Thanks!

[Greg R.]

Hey @Daniel Han, really depends on your strategy and what you're wanting to accomplish. As a relatively younger investor, I see my properties as my retirement. I'm about 20-25 years out from retirement, and I don't think there is going to be social security or anything similar when I get to the age. So for me, I have held on to all my properties with the long game in mind. 

Sounds like you're not using your VA loan to its full potential, but would you need to sell this property to buy another? Seems like you might have enough entitlement to purchase a second home w/ the VA. If not and you want to keep the home, might not be a bad idea to refi into conventional. Your rate and payment are going to increase, but if you can increase rents as you're projecting, it would make up for it. If you are able to leverage the VA loan to get another home AND keep this one (and cash flow), I see that as a win-win.