How to property evaluate an existing rental property

[Po Chan]

I bought a property 9 years ago for 52k that has long been payed off.  3 years ago I refinance the house and took out 87k to buy a 2nd house which I am currently living in.  The payment on that 87k loan is rounded up to $600/month.  The 1st house has been rented out and generate $630/month after all expenses including the $600 monthly payment for the 2nd house; now, my thought is that I am getting $630/month plus a free house!

The 1st house is now worth 160k and I can expect around 80k after commission, closing cost and 87k loan if I sell the house.  I am trying to calculate the ROE of the 1st house to decide if I should sell the house to finance other rental properties with better cash flow.

My question is, when calculating ROE, should I consider $630 as the only source of income or should I include the $600/month payment which will make $630+$600 = $1230 as the income?

Using $680 as income, ROE is then 630*12/80,000 = 9.45%, which is ok but I am sure I can find something better.

Including the $600 I am paying for 2nd house, ROE is then 1,230*12/80,000 = 18.45% which is great and I should keep the house.

Lastly I think value of the 1st house has reach its peeks and will not go up for much longer

Thanks for reading, your input are appreciated.