Sell or cash-out refi?

[Sammy Brooks]

Newby here. I find myself in an envious position, and was hoping to get some seasoned feedback on what to do. I have a house that I bought for my parents years ago in NC (3bed/2bath). The mortgage was for 100K, with 10K as down payment. That was the extent of my investment. My thoughts at the time was to eventually turn it into a rental unit someday. Family has made all all the mortgage payments in the meantime, and incremental improvements to the property over time (added back deck with ramp, double paned windows to all bedrooms and living room). Water heater new, HVAC recently updated.

Fast forward ten years, and I am now living in TX and with plans to have my mom move in with us here. So a couple of options to consider with the NC house, now that I've had agents view the place:

1. Sell, for around 165K-180K (after replacing carpet/paint, landscaping). If so we would go directly into a 1031 exchange for a local rental property purchase in TX.

2. Convert home to official rental property using local management company (after replacing carpet/paint, landscaping). We would then go for cash out refi for roughly 55K once tenant is lined up. We would then use these funds for next deposit for rental property in TX.

Am I missing anything obvious here? Am leaning towards the cash out refi in order to avoid the tax event but I'm sure there is something else we're not seeing here.  Thanks in advance!