When to sell an inherited property?

[Ward Sorrick]

My brother and I own a 1,652 sq ft single family home in Walnut Creek, CA. We inherited it from our father when he passed away 10 years ago. The home is fully paid off and the tax basis on the property is around $400k.

We currently rent the home to wonderful tenants. It’s a family of four who absolutely love the home and take good care of it. They’ve been there 5 years now. We earn $3300 a month which is low for the area. We could probably get $3400-$4000 a month. We’re locked into the current rate with the tenants through May 2021.

The home needs some attention. We’re going to be painting the home next month ($5500 expense) as the paint is chipping and cracking in several places. The sprinkler system and deck need to be replaced in the next year, I think, too. Otherwise the house is in pretty good shape.

The home could probably sell for $1M+.

My brother and I are wondering: do we sell the property to take advantage of a 1031 exchange to buy a larger investment property? Maybe a multi-family property? Downside there is we’ll have a mortgage and a tax basis that is 10x what ours is now.

Or do we keep the property forever as a rental since it’s fully paid off and the taxes are remarkably low for this state?

Thanks!