I'm debating selling this property, input welcome

[Tyler Brown]

I own a two family house in Queens (New York City).  This is not my primary residence; it's for rental only.  It's fully paid for, but it has less than impressive cashflow.  After all expenses, it generates roughly $25k a year.  I think if I sold it, I'd realistically get around $830-$850k for it. After realtor fees and such I'd ballpark a net of roughly $800k.  

Or I could take that $800k and put it in index funds.  If you assume a conservative 6% return, it'd be making $48k, and that's before any annual compounding from reinvestments.

Now obviously the market can tank, but this isn't money I need any quick access to.  It can stay in there for decades.  Well long enough to ride out any shorter term fluctuations.

Basically I'm trying to think of why I should keep the home, and all the hassle that comes along with it (although we have very good tenants, knock on wood), only to make half of what it'd make totally hands off and passive.

[Dave Foster]

@Tyler Brown, the argument for keeping that property is if it's in a zone of appreciation and a time of appreciation. NY properties typically return a lower than average NOI but are very appreciation heavy so that makes it worth keeping.

If appreciation isn't on the table right now then it's probably time to sell and move it to a property that either provides greater appreciation opportunity or much higher NOI. The way to do that though is with a scalpel and not a machete. Moving from real estate entirely exposes. you to some pretty hefty tax and then you can reinvest in index funds with post tax dollars. So you not only pay tax but you also lose the use of the tax dollars for your own benefit.

A 1031 exchange is the scalpel. You defer the tax and depreciation recapture and get to continue investing that money for your benefit. You also have the chance to move to a piece of real estate maybe of. a different type or location that can provide a better NOI for you. And if you're not wanting to be a land lord any more then a move to something like a DST (Delaware statutory trust) or Tenant In Common (TIC) give you an alternative that provides well within the same returns as your index fund these days while still maintaining the tax deferral of the 1031.