Let's say we need $100k. There are two options:
1: Sell a rental home (we have 3 rental properties).
2: Get a home equity loan or line of credit on our residence.
The details are as follows:
1: We bought the rental, a duplex, 5 years ago. The mortgage payment (including everything) is about $950--it's a 15-year fixed at something like 4.25%--and we also pay water (about $150/mo). It rents for a total of $1695, with both tenants currently on month-to-month leases. We owe about $55k on this home and the realtor suggests listing it for $200k. I estimate, looking at comps, that it would probably sell for somewhere between $165-$190k, although miracles could occur--it could go a bit over $200k and there would still be some comps to support that. The reason to list it at $200k is because that way people searching in the $150-$200k range AND people searching in $200-$250k will see it in their searches. Whatever it sells for, we would lose about 8-10% of that to closing costs and realtor commissions, so basically, selling it should cost us around $12k-$20k. The realtor is a friend of ours, he's good (we've used him before), and since we live across town and have small kids, selling it FSBO isn't a good option for us. Selling it should take 2-3 months from listing to closing.
A further detail: The tenants in the more expensive unit ($900), a childless young couple, have been incredibly annoying for the past several months, always paying late (with steep late fees) and on two occasions not paying at all until I served them with an eviction notice. They have various sob stories to justify this, which I believe, but it's still incredibly annoying. Also, being across town with small kids, it's harder than it used to be for us to do showings when we need new tenants. We could rent it for $1750-$1800, but we haven't raised the rent on the cheaper unit because that tenant is great: incredibly low maintenance, always pays on time, quiet, clean.
2: Allegedly, per our guy at the bank, we could get a $100k or more HELOC on our residence for no fees (bank pays everything) and an interest rate of about 3.25% to 4.5%. He claims to be unable to tell us what our actual rate would be even if we showed him our credit scores, because the bank factors in more things than credit scores into its formula. The availability of this HELOC depends on a certain valuation of our house, but that's hard to establish without a formal appraisal because our house is unusual. Finalizing the loan would take 4-6 weeks. The HELOC would be for 10 years, after which, if it was still in the negative, we would have to pay it off or refi again.
So my quandary is, the rental is an income source that will be paid off completely in 10 years, at which point it will probably bring in the inflation-adjusted equivalent of about $1300-1400/mo if not more (this is what it would bring in after we pay taxes, insurance and water). Such a property seems like a nice thing to have as the kids approach college age. On the other hand, within the next decade it's going to need a new roof and total repointing (brick house), which together could easily cost $30k-$40k, and it will no doubt also need new appliances and the usual other maintenance.
I hate selling an income source, but I also hate losing equity in our home and paying interest for the privilege. What would you do?