Should I sell or cash out refinance?

Question

I need some advice on what to do with my rental property. This was my first property, and although I have bought a couple others since, I still have never sold a property. I'd like some thoughts on if I should sell or do a cash out refi, and what are the pluses and minuses of each.

Here are the details on the property:

Duplex in New Orleans, Louisiana. Purchased in 2008 for $325k. Refinanced in 2009 at 5% 30yr mortgage. I currently owe $260k on the mortgage. Over the years I have put in approximately $40k in repairs and upgrages.

I dont know the exact current value, but given its location, the zillow estimate and a realtor friend's estimate from a year ago, it would sell for anywhere from  $415k to $450k (maybe more).

The property is cash flow positive, but not but alot.... My net for the year is just around $2,000, (though the rent is also paying the mortgage and building equity). I live out of state now, and have a property manager, who I trust (he literally lives next door) and does a good job. My parents and sister also lives nearby and check up on the house occasionally. It has never been vacant, and rents very easily, as it is an attractive house in a very desirable area (uptown new orleans by the wholefoods) where rents and property values continue to go up.

Any thoughts on what I should do with this property? I would like to take the equity from and invest in some better cash flowing properties, now that I know (a little bit) more about what I'm doing.

Thanks in advance for you input!

Candace Reed · Answer

Keep it, keep it, keep it. We are on a climb in values and you will miss out on increased equity you will regret if you sell now. It's a no brainer as far as management (rather worry free). You really have a great opportunity to watch the values grow. I've lived here in NOLA for only 5 years but the last year has been amazing. New movie studio just started (don't worry the reduction in tax credits to the industry are not affecting us much) and the growth in population is evident and continuing.

Muhammad Abdullah · Answer

@Adam Streiffer

I would compare both numbers sale vs refi but lean more to sale because of the low ROI.

Adam S. · Answer

@Craig BrouilletteGood to know about the zestimate. I have taken the approach with the property (so far) that I will hold it forever, and thus have been diligent on preventative maintenance. The roof was new in 2004 (i.e. pre-katrina) and I have hear that a large storm can reduce the life on a tab-seal roof by 10-15 years. Do you have any insight on that?

Also, good point about the PMI. I would love to get rid of that!

Lastly, is a HELOC even an option, since I dont live in the property anymore?

Thanks everyone for your input!

Adam S. · Answer

@Candace Reed I hear you. It has been amazing watch the city grow and change, especially since hurricane katrina. But, do you have any concerns that the new orleans real estate market is in a bubble? On some level I have trouble believing that the prices we are seeing now are sustainable... (Also, how many restaurants can one city actually support!?).

@John D. Thats a really good question. I do not have any specific properties in mind. I know my current property is not too bad an investment, and I'm pretty luck it worked out for a first purchase. I just have a sense that I can now leverage the equity in the property and make my money work harder. I guess my question is, what is the risk of doing the cash-out refi? Are there any substantial risks?

Edward Colby · Answer

I think cash out refi, betting on property appreciation, would be the safe play. You could sell and invest in a more cash-flow friendly property @ that price point quite easily though. Comes down to how important cashflow is to you right now. Personally, I'd keep it. NoLa's real estate seems to be in good shape.

John D. · Answer

What are your other options / can you find better cash flow opportunities that you like and are comfortable with?

Might make sense to do a cash-out refi or LOC and use that money to buy the next place, if you feel good about the likely appreciation on your existing place.  Nothing wrong with a little cash flow, tenants paying down your debt, and some nice appreciation.....unless you have a far more attractive property in your sights.

Should I sell or cash out refinance?

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