Sell rental to cash out equity or keep it long term

[Rohit S Bora]

Hi there,

I need some help deciding if I should cash out of my primary home turned rental property before I am responsible for paying taxes on capital gains and pocket the equity or hold it long term with positive cash flow and possibly a retirement income. Our current rental was our primary home for over 6 years until September of 2017 when we decided to buy a bigger home. So, in short we have had our rental for last one year. Right now we are sitting on over $400k of equity on the rental along with over $750/month of positive cash flow. Here are the two major questions that I have been eagerly waiting to find answers to and need some expert opinion from all you experts out there:

1. Cash out on equity on the rental property by selling it while market is high. Properties in the area for the like kind are going for over $700k but let's just say I am able to sell the rental for $700k. My purchase price on the property was $375k which means I have $325k of capital gains. My mortgage payoff balance is $295k at the moment. So, if I were to sell it by 2020 (within 3 years of turning it into rental), I pocket the entire capital gains on the property (roughly $65k) but I will instantly lose my $750/monthly cash flow from rent as well as all other tax deductions and depreciation I could benefit from each year. Basically, after paying agent commissions and other miscellaneous cost (roughly 8%), along with paying of the mortgage balance, I would pocket close to $350k, tax free.
2. Stick to the rental long term with a great cash flow of $750/month and take advantage of all the tax deductions and depreciation, while the renters are paying off my rental slowly.

Please note, I don't need money at the moment and don't have any other investment vehicles that will generate a guaranteed 8-10% growth to my investment. What would you guys do in this situation? Thanks in advance guys.