If you lived in the property you can sell it to capture the equity without paying taxes on those gains.

Not every deal will see that kind of rocket fuel, of course, but it does show the kind of upside some Phoenix investors captured.

Would like to sell and capture gained equity, also cash flow is not great and the house needs more work.

We will be adding a day light basement to their Studio House plan to capture views of the lake we are building on.

If you don't want the property any more a 1031 is probably your best bet, unless it's got a huge capital gains capture in which case you could just take your tax lumps and collect your funds. 

What Don says captures most deals that ultimately looked to have been undervalued by the market, or current owners, but really were not. 

We have 3 projects going in Loudoun county VA and in my poking around there and looking at product there is some massive townhouse developments there to try to capture the starter or lower priced housing..

Recommendations for you would be to keep super meticulous records of all the costs you’re putting into the property, so your tax pro can make sure you’re capturing everything 1) correctly and 2) in the most tax advantaged way. 

Or is it better to capture all the rental income while continuing to pay my current rent at $500/month?

The stodgy that most of the investors that I work with use is to make sure that every 1-2 years they look at their portfolio and capture the equity to help grow their wealth.As a benefit for the investors that I work with we have partnered with a company that we met at BPCON that looks at this exact thing.