Refi or new property?

[Mandy McAllister]

Which would you choose to do with 40k?

My husband's former residence is now a rental property for us.  Property is worth 120k, we owe 133k.  Market rent is about 1300 per month.  Loan is a 20 year HARP at 5.25%.  PIMI, and taxes come to $1250 per month.

In order to refi, we'll need to pay down the loan to 75%, and bring 43k to the table (133k - 90k = 43k).  This would make the property cashflow about 400-500 per month.

-OR-

We could take our 40k and acquire another property that will cashflow the same 400-500 per month. 

Would you lock in something new and let the underwater property work itself out over time, or would you rather build a monthly buffer in?

Thanks for your advice!!