Getting Equity Out of Rental Property

[Christina R.]

Hello,

I am interested in taking equity out on a paid off investment property in Philadelphia, PA. I bought it about 6-7 months ago with my father and am unsure what options I have at this point, and how favorable interest rates would be for an investment property. There is a tenant in place with option to renew in December. Ideally, the goal is to use the cash toward another investment property. 

I internally debate whether this is a good idea. On one hand, having the mortgage interest deduction against the rental income seems like a positive (but then closing costs seem to negate that benefit.) On the other hand, having rental income without having to worry about another debt is nice, but then the equity is locked up in the house and no tax benefit. 

What are my options for taking the equity out at this stage? I've been looking into HELOCs, home equity loans, cash-out refis, and cross-collateral loans. 

I understand that any of these products are subject to my debt to income ratio. I have an owner occupied duplex that generates some income but puts my DTI somewhat close to the max. My father also has a mortgage for his owner occupied duplex. As an aside, my husband and I have a 5 year plan of perhaps buying a second home to live in and turning the owner occupied duplex into a complete rental. I would prefer not to sell that duplex if I could swing it. I'm also thinking since he has no debt, he would help with any mortgage we get for the second home. In that sense, I wonder if I should just do nothing at this point with the PA rental.

I would appreciate any advice or suggestions!

Thank you.