Cash out refi vs selling home - Philadelphia

[Rob Stiefel]

Long time reader, first time poster.

I am a novice investor in the Philadelphia market. I bought my primary residence at a great price in Dec 2015. It’s appreciated about $120-140k. I owe $256k, the property is worth btw 500-525k. It’s in a great area of the city- taxes are high, but I’ve kept them down lower compared to neighbors.

I own two other places around the city. One great cash flow (+1700/ month), one great appreciation area w cash flow (+700 per month).

My wife and I want to move to the suburbs and the houses out there are quite expensive. I plan to put 20% down on the suburbs house to get the best rates and keep my payment down. I originally thought of selling my current primary residence, flowing some of the money into the suburbs house and looking for another investment property in the city. However- I think this house has room to appreciate in the long term and would be an easy rental.

My current payment (w tax and insurance) is $2k per month. The cash out refi would get me roughly $140k in cash, but increase the payment to $2500/month. I can rent this house for ~$2800-3200. But I’d take my outstanding debt on the property from $258k to $420k.... this kind of scares me, but I know if I can keep this rented my risk is minimized while I lay down the debt.

Any thoughts? Should I consider selling? My neighbor sold their house for $515k in 2 days and it’s the same house, mine is a bit nicer w lower taxes. Or hang on to it and access the equity?

My plans long term are to continue to grow my rental portfolio through mostly buy and hold (some added value strategy as well!)

[John Underwood]

Something to consider is that you would not owe any capital gains tax if you've live your primary residence the last 2 years which it sounds like you have.
If you turn it into a rental and sell one day down the line you would owe capital gains on the property which could negate any possible future appreciation. You could do a 1031 exchange at this point and roll the proceeds into another property.

I think I would sell now when you wouldn't have to pay capital gains taxes.
You could use some of these proceeds to buy another rental property and take advantage on a low down payment on your next owner occupied property.