The issue is the savings associating with paying down the mortgage is so low that almost any investment is likely to out perform it. 

Is this a fact that townhomes outperform SFR's over the long term? 

In both the premodern and modern eras, this has outperformed the others on a risk-adjusted basis.

I also have friends who are debt free but math would suggest they could out perform the debt.

But the easiest way to look at it is if you can outperform the debt then don't pay it off.

Anyone else have the thought that good cash flowing rental properties will outperform index funds over many years hands down?

You’ve outperformed the current market, which over the past year has brought in returns much higher than 7%.

Personally, I have 17 single family  homes, government subsidized units that out perform anything I've ever seen.

A well kept and well managed property in any neighborhood will outperform the competition.  

However, I suspect that it is a forecast forward otherwise, if using historical appreciation in San Diego, owning would out perform renting especially if calculated as though property was financed.