Cash out Refi vs Sell Question

[Marcus Hill]

Hi! As an investor, what is the value of Cash out Refi vs Selling.  I understand that I do not have to pay capital gains tax on a cash out refinance.  So to that point, why wouldn't I cash out refinance, grab that equity, tax free. And then sell some time later where I already have the appreciated equity at a tax free rate? I am guessing there is something I am missing, but I can't seem to understand why wouldn't everyone do that.

[Dave Foster]

@Marcus Hill, A refi cash is not taxable true.  But debt does not determine your profit when you sell.  Your profit will still be the difference roughly between what you sold it for and what you paid for it.  So cash outs are not a path to tax free profit.

But a cash out on a strong performer that doesnt' hurt it's performance is a very strong move.  Because when it is time to sell later you can still defer all the tax simply by selling and doing a 1031 exchange.  In the meantime the tax free refi let's you continue to reinvest and capture the good returns of the current property.