Sell 1 or 2 properties, or Refi/Reno?

[Evie M.]

I own a duplex and 4 SFHs in the same market, all rentals. Three SFHs are owned in cash, one is financed at about 55% LTV. That financed SFH gets the highest rents of the portfolio, and is cash flow positive.

The duplex, which I've held for 6 years, has 3x'd its value in that time. Unfortunately I've just discovered that when I got a heloc on it 2 years ago the bank apparently over-valued it significantly -- almost double its current FMV. So despite getting only a 70% LTV (I thought) the property is actually underwater. The heloc is fully tapped (it's how I bought the 3 SFHs.) I don't foresee the property appreciating by another 2x in a reasonable timeframe.

The original tenants are still in place and I've only been raising rents by cost of living/inflation so the rents are about 80% of market value as-is, 50% of current market value if renovated. It also had a lot of deferred maintenance when I bought it, so it has ongoing repair expenses. The repair costs are making this a cash flow negative property, but selling it would cost both the underwater amount and the capital gains. Renovations to get it up to market rate rents would cost about the same as the sale - but then it would only be cash flow neutral, not positive. Doing a cash-out refinance at 75% of what the bank thinks the duplex is worth would fund the renovations that make it cash flow neutral. After renovation it would be only slightly under water, but capital gains would go up. Selling the other mortgaged property would produce enough cash to fund the duplex's sale or renovation, net after capital gains for that property.

Should I:

1) Refi + reno and continue renting

2) Refi + reno and sell

3) Sell the duplex and the other leveraged property

4) Sell the duplex and one of the lower cap rate, non-leveraged properties

5) Something I'm not thinking of