I have one rental property that has increased substantially in value. What is considered best practice for extracting some liquidity if you want to use the equity to buy more property? Cash out refinance and use it for a down payment on another property? How much equity should be maintained, right now the loan balance is about 40-50% of the current sale value? Or just sell it and use the gains as down payment on 2-3 properties?

Assuming the property is a single family and you are looking for conventional financing the max loan to value on a cash out is 75%. for a 2-4 unit it is 70%.

A few questions:

1. Is your current rental property in an area that you expect will continue to appreciate?
2. How much cash flow will you get if you refinance it at various loan to value assumptions? Is that cash flow meaningful to you or does it normally get reinvested into other real estate deals.
3. Is your current property easy to manage? Or are there headache reasons you might be happier with it being someone else's problem?

My general advice in today's high inflation but historically still low interest-rate environment Is to maximize leverage and upleg as much as you can with a 1031. Your asset and rent will continue to appreciate with inflation but you'll be paying debt service at a fixed low rate.

I would also recommend maybe speaking to a mortgage broker that deals directly in your specific asset class you can go over various lending options that you may not be aware of. I found some weird out of market lenders that we're happy to get into my area and gave attractive rates. Just be aware that mortgage brokers get their points.

Jay is correct...cash out will be 75% of the current appraised value less payoff on existing mortgage. The nice thing about investment property is that we offer no income, no asset documentation required loans using the appraised value after owning the property for six months or more (if under six months, value will be based on purchase price plus documented improvements (reciepts etc)). rpm-mtg.com/bbazar or pm me.

Following, as I'm in a similar situation. Loan balance is less than 40% of the market value. Decent cash flow with good tenants (need to raise the rent this summer), so I don't want to sell.

Cash out refinances on investment properties will have the worst rates in the market. If you have equity in your primary residence you might consider a HELOC which typically has no closing costs.

my buddy from the Air Force has spent a career developing real estate and told me point blank not to buy anything right now.

he states the market will be better for purchasing after the oncoming recession hits

An oncoming recession doesn't necessarily mean asset prices will fall. If we have stagflation, which I see as a huge risk, inflation will grow while the real economy shrinks. As a quick example using 100 widgets worth $1 each.

2022 Widgets: 100 widgets
2022 Economy Size: $100

Then with a recession + inflation:
Real Economic Growth: -5%
Inflation: 10%

2023 Widgets: 95
2023 Widget Price: $1.10
2023 Nominal Economy Size: $104.50