Should I cash out on my refinance to buy another property?

[Alan C.]

I am refinancing a duplex and can buy down points to get a 3.125% APR on a 30 year fixed mortage (will cost me $11k to buy the points). This will be a long term hold investment. If I went through with this option, I would be positive cash flowing $750/mo on this property which is very enticing.

The other option would be to cash out ($110k) but the rate would go up to 3.875% APR and it would cost me $17k to buy down the points. This would put me in a cash flow neutral position.

I was planning on retiring in 3-5 years and so the positive cash flow would be very helpful then, but if I cash out, I could use this for the down payment on another property. 

My opinion is that inflation will be sustained for at least the next 5 years, and that I could grow more equity during this time while real estate values go up...and then when I finally retire, I can sell one or more of the properties, transfer it via 1031 exchange into a Delaware Statutory Trust, and maximize cash flow then.

What do others recommend if they were in the same position?

Thanks!

[Theresa Harris]

Run the numbers.  You said you'd own it long term.  See how much the difference in interest rates will cost you after 5 ($3600 in interest per $100K of your mortgage) and 10 years, then add in the extra $6K financing cost and factor in the cash flow.  Also think about what you'd do with that $110K if you pulled it out-buy another rental?

$750 a month cash flow (assuming that is after all expenses and not just mortgage and factors in maintenance, repairs and vacancy) is $9k per year.  And if you used the $110K to buy another rental the difference would be less (and you'd be paying down that other mortgage).