Refinance or 1031 - two family property?

Question

Hi BP,

Looking for some thoughts. I am debating on whether to either:

Refinance a two family property I own and pull out 20-30k and purchase another two, three, four family property

OR

Sell and 1031 into a 6-12 unit property.

The property is worth roughly 190k and I owe 110k. Anyone who has done or been in a similar spot and has advice I would love to hear your experience in either refi or 1031.

Thanks,

Ryan

Dave Foster · Answer

@Ryan Corcoran, I think the two most important questions are "will it cash flow if you refi?"  And  "Is there any upside appreciation left in it at all?"

If it cash flows positive and there's any upside at all then maybe you keep, refi and get another.

If it doesn't cash flow but upside is huge (really really huge) then maybe you keep, refi, and subsidize the loss from the new property.

If it cash flows poorly with no upside or if it doesn't cash flow then sell and 1031.  You'll free up more cash to purchase your next one and you can ensure that you get a positive NOI.

Stephanie Cristiano · Answer

Think about your goals.  Is it cash flow?  If so, you should analyze your current cash flow relative to equity.  Can you make better cash flow elsewhere?  If so, selling (1031) may make sense.   Appreciation is speculative, but cash flow you can estimate fairly precisely by looking at current rental rates.  Obviously there are other factors like risk and using your knowledge to speculate which properties will appreciate more.

Ryan Corcoran · Answer

Hi Stephanie!

Thanks for the input. I am looking for cash flow. It cash flows pretty well right now for a two family property and I wouldn't be opposed to have another two family and repeating the same process by refinancing. However, my ultimate goal is to own apartment complexes so I am torn.