Are you thinking about selling some investment property to raise some cash? Perhaps you want the money so you can take advantage of this great buyer’s market in real estate. Or maybe you need some extra money in your bank account to ride out some of life’s bumpy rides.
You have equity in some real estate (perhaps you own it ‘free and clear,’ or have a small loan on it), so you are considering selling it (or feel you’re forced to sell it) to free up that cash. But don’t call your Realtor just yet! Your best option is probably not to sell, but rather to refinance the property. Here are the three key reasons why you might want to refinance rather than sell:
Four essential words – Tax-Free Loan Proceeds
If you sell your property, you’d better save a good chunk of the cash you receive, because you’ll need it next April to pay taxes on your gain. You will be taxed at either capital gains rates (if you’ve owned it for one year) or at ordinary income rates. But if you do a cash-out refinance instead, the loan proceeds you get are tax-free! That’s right, you won’t have to pay any taxes on the next April or the April after that, and so on, until you eventually sell the property. So you have full use of all of your proceeds, without creating a current tax liability, look at texas cash out refinance for more information about cash-out refinance.
Remember, it’s a Buyers market, not a Seller’s market
So why sell now if you don’t have to? Get your cash out by using a different vehicle (refinance) and preserve your ability to earn appreciation as the market improves over the next few years.
Speed and Control
If you decide to sell your property, chances are it won’t sell immediately, unless you price it well below market value. Let’s say you list it with a realtor on the MLS, wherein most neighborhoods the average DOM (days on the market) is 3-6+ months before selling it. Even once you have a buyer and open escrow, you have risks beyond your control – you’ve got to deal with inspection periods, potential repairs requests, and the chance that the buyer’s financing might fall through at the last minute.
Contrast that to your cash-out refinance, where in most cases, you can complete the entire refinancing process within 30 days, and the process is much more within your control. Faster and more reliable cash beats slower and less reliable cash every day, in my opinion.
So what do you need to start your cash-out refinance? You’ll need credit tri-merge scores of about 680 or higher, at least 25% equity in the property, and you will likely need to be able to document your income, via W-2’s or tax returns. Interest rates are desirable, so you might even lower your price as a result of the ReFi. To get started, contact your mortgage broker to get pre-qualified.