Prices are high, but should I sell my rental property?

[Gary Rutledge]

I own a rental house in a hot neighborhood in Dallas, Texas that was built in the early 1950's.  People are demolishing the older houses left and right here and putting up larger homes. Last year, the first home on my block was scraped and the newly built home sold for $945,000.  I can easily fill my little house with good tenants in about a week from putting out an ad.  Plumbing, electrical, AC, water heater, roof, windows have all been replaced so it is low-maintenance.  Also, I don't mind being a landlord.

I paid $88,000 for the house in 1998 but it is now worth about $275,000.  I no longer have a mortgage, so after property tax and insurance I clear $9,000 a year (Dallas taxes are quite high). 

The market in Dallas is really, really good right now so I feel as if I should sell.  But if I did sell, I'm also not sure what I would do with the cash that I'd be pocketing.

...Or perhaps I should hang on to it. It really has turned out to be an easy way to make an extra $9,000 a year.

Is there anyone in a similar predicament who might have some ideas? 

(A little about my situation...I am a 51 year old teacher, I live in a $200,000 home in which I still owe about $100,000 and should have that paid off in ten years. I will retire in 12 years.

[Russell Brazil]

Do not sell and wait for the market to correct. (Sorry to harp on the person who gave this advice). Markets go up and down. If someone sold in 2003 while there was a hot market and waited for it to correct, it didnt correct low enough 7 years later to get down to a 2003 price (In most of the country). The fact is no one can predict the peaks and valleys of real estate booms and busts.  Ive bought things dam near the bottom and sold somethings dam near the heights, and it was 90% luck.

I wouldnt sell though till you knew what you wanted to do with the money. @Jay Hinrichs makes a great suggestion of doing a 1031 into a larger property. I might also suggest consider trading up, but taking your wounds now and paying the taxes.  Im selling one of my multis now to trade up, but Im going to pay my taxes now instead of going into the next property with some crazy low cost basis, which could kill me on future taxes if long term capital gains rates get raised at some point in the far future.