Should I sell or do cash out refinance for rental property ?

[Maggie Li]

Hi, there, I have a previous primary house in Southern California. The house build in 2008, 3000sq in a so so neighborhood. We convert that to a rental property in 2015. It has about $600K equity now. I’m just wondering whether I should sell it or do a cash out refinance to invest in a better neighborhood.

Thanks for any of your advice !

[Jeff Shumway]

This depends on a lot of factors- in most cases I recommend doing the cash out refinance so you continue to have that cash flowing asset. Of course as your tenant pays the rent and the value of the home appreciates, you build equity to access at a future date whereas if you sell, it's one and done. You no longer have access to the potential future nest egg. There are definitely long term advantages to retaining the current property, so you'll have more sources of passive income.

That being said, what would be your next investment and how much do you need? Do you need to sell the current property to get enough assets to either finance or purchase your next property outright? If you need all the capital from selling the property, perhaps look at going in on a deal with another investor instead of selling? Even if you end up with a slightly smaller piece of the pie, you still have two slices of pie instead of one.