Have 25% LTV mortgage. Save Up cash or Refinance Out cash?

[Steve ONeal]

Hi all.  Thank you for reading.  I'm mentally stuck and could use some perspective.  It has always been clear to me to sell what I've bought and fixed up, but now it does not seem to be the no brainer it once was.  

I have a 7 unit building bought in 2000, now fully improved with market rents, in a historically very rentable San Francisco neighborhood.  I have 20 years left on a libor adjustable $1 mil mortgage that has been at 2.5% for the last 4 years.  The building is now worth about $4mil.   So there is $3 million in equity in it.  My cost basis is about $2 mil.

Income is $300k a year.  Property Taxes tied to the $1.8mil 2000 price are $20k a year.  Insurance and Maintenance are about about $20k a year.   Mortgage payment is $60k a year.  So I'm netting $200k a year.  A lot of rent from 7 easy tenants.

Assumptions:

Market - prices will flatten in SF, but not crash any time soon.

Interest Rate - rates will rise, but very slowly over the next 5 years.

My Income - I have one other 4 unit building that I live in and will hold, with the 3 other rents covering my mortgage and all my living expenses.  I have no other income.

Questions:

1) Do I just sit on this as it is and let the cash flow build up - using the savings and income to qualify and eventually buy another building.

2) Do I refinance a larger loan, maybe fixed 15 year, and cash out?  The building would stop throwing off cash, and I'd have a big pile of cash, but no longer the excess monthly income I think needed to help qualify for a new loan.

3) Do I sell and try to 1031, but it would have to be a big building ($4mil +) now with double the property taxes, a new loan, and I'm not sure I can find something that size?

Thank you for any advice of any length.

Steve