Should I sell it or refinance it?

Question

I bought a 28 Unit apartment in 2018. I have updated 90% of the units, increased rents and increased the NOI. Interest rate is 5.5% with a balloon payment of five years. Even though it a D class property, It’s cash flowing nicely at this time. Sometimes I think I should refinance to get better terms and pull some money out to continue investing. On the hand, I’m tempted to sell it and then repeat the process again.

Alan Feldman · Answer

It really depends on what your investment strategy is. If you are following Brandon's "7 figures in 7 years" plan, you could sell and get into a 75 unit and live off the profit. However I have seen some 20-30 units that cashflow quite nicely. Sounds like you have one right here. Either way, IMHO I would refinance out of the balloon loan before it expires. Then you have some breathing room to decide next steps.

Martin Lindsay · Answer

I agree with @Alan Feldman. You won't really get a straight answer of which route is better as it pertains to your goals and risk tolerance. My suggestion would be to assess your big picture goals, and then explore your options with this property to see what gets you closest.

As an example, my current goal is to build more working capital through flips to scale and buy more rentals. I have a few rentals I was trying to refinance, but was running into various roadblocks and wasn't getting what I needed therefore I decided to sell them and take my nice profit which falls in line with my goal.

Every move you make should be the most advantageous to set you up for the next step in your plan. Hope this helps!

Abad Marroquin · Answer

Than you for your input Alan. I like the 1031 exchange idea, but the time frame to identify and close on the replacement property makes me nervous. On the other hand, I am not sure if pulling out the equity to buy more rentals would offer the same potential to scale as if I did a 1031 exchange. I guess my question is which rout would be better between the two.