Question on whether we should Cash-Out ReFi, sell or leave as is

[Bryce Matson]

Hi All,

We own a house in LA and are moving away. We want to convert our garage into an ADU and then rent out the main house and ADU. The main house would be 3 bdr/2 bath and ADU a 1 bed/1 bath. We think the max rent we could get would be $4K for the main house and $1,800 for the ADU. Our realtor estimates the house would be worth $1.2 mil after the ADU and currently valued at $950K. We estimate it will cost $50-70K for the ADU conversion. The main house has solar and tesla wall charger.

We are trying to decide whether to sell or ReFi after the ADU or leave as is and just rent it out. Our interest is at 2.89% so the rate would go up in today's market and after refinancing at $1.2mil we estimate our monthly payments to be higher than what the rent would collect after all fees, reserves, etc. If we sell we lose a decent house at a good rate as well as our only asset in CA that we could use to write off our visits back to CA.

We are currently leaning towards not refinancing the house and just collecting the extra cash flow from the ADU but we wanted to use the large cash-out of around $300K to get other houses. We could also minimize our cash-out to just cover the cost of the ADU (then use it for down payment on new primary residence) and a little more for a down payment on another investment property.

I wanted to see if there is something we are not thinking of that might make better sense to take advantage of the equity we have and would add with the ADU. If there is any other info you need to better help please let me know! I appreciate any advice!