Cash out Refi - Want to tap equity

[Luca Mastrangelo]

Hi everyone, this post is about my parent's situation.  They own a 4 family property.  Property is zoned as 4 but they owner occupy the renovated attic suite which has 4 bedrooms , 2 baths and 2 large common rooms.  They used to occupy one of the second floor units (1 bedroom) and the attic, the over the years started renting the 2nd floor unit(electricity is included in that unit because they don't have a separate meet for the attic suite area).  Access to the attic can be had on either side of the building but can only be accessed on one side without entering an apt (there's a common hallway area). The other side could be reconfigured for less than $5k to make a common hallway as if they ever rezoned it to make 6 legal units.

Legality issues aside, they need some equity and are considering selling. Both my parents are around 75.  My dad has been managing the property for the last 30 years.  They redid the attic about 15 years ago (carpet, basic amenities etc..). They didn't really do much to the units themselves for a long time until recently.  It (2) 2 bedroom units and (2) 1 bedroom units.  They're all good size though , the 1 bedrooms are about 1000 sq ft and the 2 befroom units are closer to 1250 sq ft.  They renovated one of the larger 2 bedrooms about 10 years ago (its a fairly nice apt) and then in the last 2 years renovated the other 3 (~$60k in renovations).  They need to access the equity and are considering selling it outright. 

Rent rolls are about $1500/month/unit = $6000/month. They could prob be getting closer to 1750/2000/month for the 2 bedroom units but use $6k/month for this exercise.  Building would prob sell for $750-900k based on comps, location etc... and probably closer to the $900k based on the location.  There is no mortgage on the property, they own it outright. A smart investor would buy it , rezone and make it a 6 family with 2 additional nice size (1200ish Sq ft 1 bedrooms in the attic suite area).

Im trying to convince my dad to keep the property and do some kind of cash out refinance. They don't need that kind of equity infusion, they wouldn't know what to do with the money, aren't great investors and is safer tied up in the appreciation of the MFR. I think there best bet is to take a new 15 year loan on $400k, get a property manager and call it a day. In this example, they would relocate to a single family property we grew up in the same town. This house has great bones (new roof, siding, windows, furnace etc.. but needs a lot of interior cosmetic work. a basic kitchen and bath reno and new drywall and flooring throughout. Call it $100k. It's not creating any revenue and wouldn't be rented for reasons not relevant here. They also own a small house in FL they split time with. The balance of their withdrawal would fund their day to day expenses for the next 10 years.

Here's my back of the envelope math, does this work?  Other thoughts on how they can access approx $400k of equity? Can they get a rate of 2.5% on a cash out refi?

- 15 year loan at 2.5% on $400k = $2688/month. 

- property manger = $6k/year (1 months rent roll) -i think that standard but not sure if there is a discount for a multi family

- Taxes = 10k/year

- water/sewer = $2k/year

-maintenance = $5k/year

Total Revenue = $72k

Total costs = $55,256

Profit = $16,744/year or ~$1400/month

Thanks in advance everyone!!