Question: Cash-Out Refinance vs. Selling Property: Which is More Cost-Effective?

Question

I'm considering two options for my property and would appreciate some advice:

• Cash-Out Refinance and Then Sell: Cash-out refinance to access some of the equity, then sell the property to get the remaining equity.
• Sell the Property Directly: Skip the refinance and sell the property outright.

My main concerns are:

• Fees: Are there more fees involved with doing a cash-out refi and then selling compared to just selling directly?
• Taxes: Could this strategy help in saving on taxes, or would it just complicate things?
• Overall Cost-Effectiveness: Is there any real financial benefit to taking this route, or is it essentially the same as just selling?

Has anyone gone through this process? Any insights or experiences would be greatly appreciated!

Randall Alan · Answer

@Mario Morales

Selling directly is the cheapest route of the two you list - but realize that one (the refinance) lets you keep the property and the other disposes of it.

If you cash out refinance you incur (more or less) all the lending fees associated with a financed property purchase (even though you are just refinancing the property you already own), and then you incur significant fees when you sell the property (closing costs, commissions, etc). So incurring the fewest expenses is the cheapest exit plan.

There is no tax advantage to refinancing the property first - in fact, the refi will often force the taxing authority to reassess the value of the property - which would likely remove any tax grandfathering you may have - raising your taxes.

There is no advantage to doing a two step process like you mention.

Randy

Question: Cash-Out Refinance vs. Selling Property: Which is More Cost-Effective?

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