These used to be the "hood" areas of Pasadena and they are still to some extent… but they are selling for $850k+ (the small homes that is… ) You can easily go to North West Pasadena and buy a home for $750k that is only 900 sq ft and add 1000 sq ft and an ADU and make that home's value jump between $1.4 to $1.6 (or higher in some cases).

@Matthew Alonso we have a townhome that is tenant occupied through next May that we're looking to sell to fund a new build.

Sell it yourself and pay zero.

I've even seen distressed multi-families in some of the better neighborhoods sell to investors who convert them back to single families. 

Make sure you stay educated on your market, what is selling for how much with what features.

I sell it myself, I save $36,000.

My wife and I are trying to determine if we should sell the rental property and use that cash for our next investment. 

A conservative view here: These capital improvements can be considered your increase in basis in the property, and when you go to sell you will have a larger gain.

I would make sure you stay connect with what is selling in your area and for how much.

I just purchased my most recent property last month by selling one of my inland single family homes for a duplex closer to the beach.