Cash Out, Sell or Stay Put?

[Angela A.]

I have a condo as a rental with minimal loan balance in San Diego.  I bought the unit about 10 years ago and it has appreciated nicely.  ROE is not that impressive with around 3.6-3.8%.  Basically the equity is generating return worse than the T-bill.

What should I do with the equity on paper?  I have 3 options.

1) Cash out refinance with above 7% interest rate. Use the cash out as down payment to buy another property in San Diego.  

2) Sell the property to do 1031 into a bigger and nicer San Diego property.  10% of proceeds will go to renovation, agent fees and etc. Losing the low property tax. But compare to Option 1, it will allow more funds on the next property.

3) Stay put.  The housing price is so high compare to the rent.  The cash flow of the new property from Option 1 and 2 will  most likely be negative, unless putting a big down payment.  The 3-4% ROE is just the way it is in San Diego. But with Option 1 and 2, can use the deprecation to offset some rental income.  Would need the deprecation to offset the income after the loan is paid off.

Would appreciate your comments.