Cash-out refinance (VA to Conventional) or 1031 exchange?

[David Navidad]

Hello Team, I have a 4Bed/2.5Bath SFR in Central Texas with a tenant leased til OCT 2022 and a property manager agreement til 2023. It is not cash flowing but I am breaking even because the property taxes are killing me (I guess I'm building equity/appreciation). There's 275k mortgage left (VA loan) and the comps are selling around 400k-420k and Redfin/Zillow estimate it as 390k. I have two questions: Can I sell the property via 1031 Exchange with a leased tenant and property manger? Or should I cash out refinance into a conventional loan and use the equity/VA Entitlement to purchase another property?

My gut is telling me to sell since I don’t see myself investing into Texas anytime soon. I’m currently stationed near Ft Lauderdale but I’m originally from Arizona and would like to purchase a multi family there. Thoughts? I’m a rookie as you can tell. Thanks a bunch!

[Kevin Manafi]

Hey @David Navidad, 

If the comps are really where you are saying they are, then you are in a great position. Having options is nice.

The decision on whether to do a cash-out refi and keep the property or sell outright and do a 1031 Exchange into a different property all comes down to what you are trying to accomplish. For example, the property is only breaking even on cash-flow...is this because the rents are under market? Do you think the market that the property is in will see rent price growth over the coming years? If so, and if you are looking for a monthly passive income, then perhaps keeping the property and just taking your equity out to roll into another property would be the best move.

However, if you aren't looking to stay in Texas and don't want to stick it out, then selling with that much equity is another solid option and gives you more flexibility to take that money and reinvest elsewhere.