To refi or not to refi?

[Megan Hirlehey]

Hi BP,

I'm looking for some input regarding refinancing one of my rentals.

Background, I have 2 investment properties, one owned in my name and one owned in an entity. The personally owned property has a HELOC against it as the only mortgage, and I owe $60k on the HELOC, I still have $15k available on that line of credit (which is what I used to buy the second property). I also have a private loan from a family member in the amount of $30k. The property held in the entity is free and clear. I do not plan on buying any more properties for at least 2-3 years do to an impending career change that will take up 100% of my focus and "mental bandwidth."

The HELOC property is currently rented out as an "AirBnB" (I require a minimum of 30 days so it's technically still not a short-term rental but it's also not really a month-to-month rental) and cash-flowing "ok" at about $200/month, but won't have a long-term tenant placed in the near future. I just flipped the second property, and I have a month-to-month tenant set to move in on August 1.

Question: My original plan was to refinance the free and clear property once I get a tenant in it, and use that money to pay off the HELOC and whatever is left over would start repaying my private lender (I believe it would have to be a commercial loan as it is owned by an entity, and I think I could pull about 65-70k out based on current market value). However, with the current economic climate and uncertainty surrounding COVID, I am not so sure that it is the best time to refi a free and clear property, especially with a month-to-month lease in place. Both the HELOC and the private lender are under 5% interest. Here are what I see as my two options:

1. Refi the free-and-clear property, and pay off as much debt as I can (being that I will still have an active HELOC, I was thinking I don't need to be as worried about holding cash, maybe only hold about 3 months of expenses as opposed to 6+ which is my normal comfort spot) and use the ensuing cash flow to continue making monthly payments until all debt is paid off except the mortgage. If I do this, would you pay off the HELOC ($60k, adjustable rate pegged at prime minus 0.06%, full payment due in 2027) or the private lender ($30k, fixed rates between 3.5-5%)?

2. Hold off on refi until if/when I place a long-term tenant and just use the cash flow from both properties to pay off the debt much slower, incurring thousands (maybe even tens of thousands) more in interest over the "cash-out and pay off" option. Based on the current cash flow and expenses, I could probably only put about $500/month towards debt payoff without adding in some of my own money

3. Any other options I'm not thinking of?

What would you do in this situation?