There are a lot of of nuances to properly evaluating this, but let's simplify it like this.Stocks:- Day 1 - Buy $30k in broad market index funds- Day Z (30 years months later) having reinvested all funds @ 8% RoR = $384,706 MOL (more or less)Real estate- Day 1 - Buy a $150,000 @ 20% down = $30k- Day Z (30 years months later) asset is worth at least $292,400 (a 2.25% appreciation rate)- Along the way you earned cashflow- Along the way you had tax benefits- Less "sequence of returns" risks A linear calculation may lead to a conclusion that real estate is a lower rate of return than the equities market (and it truly may be), but there are aspects to real estate as an investment class that make it quite favorable, especially in a non-tax-advantaged bucket.

Since the equity pulled out is payed to property 2 LLC and I want to purchase Property 3 and create Property 3 LLC could I purchase Property 3 where Property 3 LLC is funded by the $130k downpayment from Property 2 LLC then transfer the ownership of Property 3 LLC to Holding LLC so all properties are completely separate.Or could I just simplify and pay the $130k from Property 2 LLC to Holding LLC then use that $130k from Holding LLC to fund Property 3 LLC to purchase Property 3 and have Property 3 LLC 100% owned and manager managed by Holding LLC.

It's really helpful when thinking of ways to simplify this process for landlords as well as tenants. 

My simplified method is before you hold out the property, no matter what you do to it, it's part of the basis.

What's left still needs to be sorted through for the good stuff but screening out all the "trash" helps simplify the process.

Simplified it, live mortgage free have your rooms rented to cover the mortgage plus an extra for cashflow.

To simplify the conversation here, I'd like to ignore if this is a good or bad idea.

I know that the percentage will very by size and bedrooms, but it is definitely easier to work with numbers if you simplify it like that instead of trying to figure out how many average cleanings per month multiplied by the cost per a specific unit type.

There's a lot of older investors looking to simplify but unable to because of the potential capital gains (and even worse the depreciation recapture) hit. 

This equates to about a 30.8% tax free and 69.2% long-term capital gains tax.For illustrative purposes (*simplified numbers*): 1) If held another 2.5 yrs to meet the 5 yr mark, and let's say the gain is $300,000, then $92,400 tax free and $207,600 taxed at long-term capital gains rate.2) If I sell now and let's say the gain is $300,000, then all $300,000 would be taxed at the long-term capital gains rate.Therefore in this example the potential savings of holding is: $92,400 x LTCG tax rate.