Thoughts on cash-out-refi into stocks.

[Ray Loveless]

I'd like your thoughts on this as I'm thinking of doing something similar:

A friend of mine has a paid off 4 plex in Utah County and is thinking about doing a cash out refi into some some stocks(Something simple that tracks the s and p 500).  He can pull out around 500K.  He's not ready to buy another property but would like his money working a little harder for him during this time.  The bank will charge him 4% on the money he pulls out and he feels he can do better than 4% these funds.

I've run some rough numbers. The rent income should still cover his mortgage and repairs.  He'll be paying roughly 20K interest on his mortgage this per year. I'm not an accountant but I'm not sure he'll be able to write off this 20K in interest because he's pulling the money out and not re-investing it in the property.  That's one of the down sides but not possibly a deal breaker to me. 

What are your thoughts?  Haven't heard of many people following this strategy.  Is he crazy?  

(including @david k. loveless)