Cashout Refi vs Seller financing

[Tudor Francu]

Hi

I bought a 7 unit building 2 years ago cash. Id like to get equity out to acquire more assets. Building is producing on average 15% annual return. I have 3 scenarios;

- cash out refi for 75 % LTV at 5.5% rate for 20 y amortization with ~15k closing costs - still keeping the asset and cash flow

- sell the asset with seller financing to a new owner for 25 % downpayment and 7% rate - getting some money back and making 7 % on the rest, but no asset

- not doing anything, run on present cashflow, and have all cash blocked in there .

Any thoughts/ advice/solutions? TIA 

[Karl McGarvey]

Your owner finance terms are not super desirable. 25% down is one of the big reasons people cannot afford to get into investing. Try a lower number to "beat" the lenders and keep your interest rate slightly under market rate like you did. 25% on a 7 unit building is going to keep your buyer pool very limited. 

[Andrew Postell]

@Tudor Francu these are two very different scenarios.  Essentially you are asking if you should be a "buy and hold" investor or a "flipper" (Flipping in the multi-family space usually takes place after you have 2 years of the higher rent rolls since the buyer will need that proof for financing).  Some things to think about when considering these two choices - if you sell the property you will be subject to capital gains tax.  If you have a cash out loan, there is not capital gains tax.  There are other things too but that's just something to think about.

[Chris McCormack]

Going to reiterate @Andrew Postell, cash out refi is a tax free transaction. Seller financing brings taxes into the equation. You'll pay a tax on the portion of the income attributable to the gain (sale price - basis / sale price)

[Tudor Francu]

thanks for your comments! i guess i am looking for the best way to get my money out and minimize expenses with closing costs and taxes . 

[David Shakhunov]

I would look into opening a HELOC. You will have 80% value of the property value at your disposal.

PROs: You don't need to draw all at once. You can draw any amount you need. Lower payments for the first 10 years (interest only). You pay interest on the amount drawn and when you draw it.

CONs: Variable interest rate. You might need to refi the newly purchased property.