Father wants to retire soon and move out of house, cash-out refi and rent or sell?

[Kristofer Marsh]

My father is close to retirement and plans to move to buy a home in Florida soon. Over the years, his current SFH in Maryland has appreciated through renovations and with time.

He is trying to decide if he should sell the house and take the equity or rent long term. He does not need the cash to purchase the new home in Florida, but could put it in other investment vehicles. I should mention he has no experience in real estate investing.

After talking, he got interested in the idea of cash-out refinancing the home to pull some equity out, going with a longer-term mortgage, and renting the house out to cash flow every month. He is attracted to this idea because it essentially guarantees cash flow into the future, and also allows for more appreciation and the potential to leave the home in his children's name to start to build generational wealth.

I am helping him with this, and frankly I think the cash-out refi then rent makes a lot of sense. Here are the rough numbers:

State: MD

5 years into a 15 year, 3.5 % loan, $1500/mo mortgage payment

Still owe $200,000

Appraisal will likely be around $420,000

Considering refinancing to a 30 year, $300,000 loan

This frees up about $100k of equity to put into retirement accounts and other investments

Based an estimated 6.5% rate, the mortgage would be somewhere around $1900/mo, and the house would almost certainly rent for $2600+/mo.

What are we missing here? Is this sensible? Our family has not had much generational wealth and this would allow the house to continue to appreciate while cash flowing. This is our first venture into REI and I would love any feedback/suggestions to help us out. Thanks!