Sell the rental?

Lots of real estate guys on this site who can give good advice. From my perspective I would sell. I assume the townhouse is worth around 135k now. So you have 85k in cash tied up in an investment that makes about 6k a year. Subtract maintainence, taxes, insurance, vacancy and it's less. Appreciation in value and tax advantages help some but your still under performing the market long term. And the stock market doesn't call at midnight when the toilet backs up.

The value dropped in the first couple of years but appears to be more stable now. I'd value it at 105k based on similar units. I've had to spend maybe $100 total in maintenance in the past year on it. Most of the maintenance issues that come up I can take care of myself.
200/month for taxes and insurance is a figure I failed to include.

Remember the three cardinal rules of real estate: location, location and location.

I don't know where the property is or anything about the area. I don't know how old the property is or what the growth/appreciation prospects are for the area.

You don't have to worry about capital gains, because you're currently at a loss: $135K purchase vs. $105K value - right?

You have a positive cashflow, though it's rather thin. You have a nice percentage of equity, a very good interest rate and (it sounds like) a stable tenant situation.

Again, not knowing your area, if you could sell for $105K, let's say you netted about $95K. Then you paid off the $50K. So you'd be sitting on $45K in cash. What are your plans for the $45K?

Or, considering that you probably bought near the top of the market back in 2007 and you've now probably ridden out the worst of it, if this is a decent and growing area and the property is in good shape, like you said, it'll be paid for in 10 years or so. Where would you guesstimate the value at that time? $140K, $150K... $120K??? I know that you don't KNOW (none of us do), just as you don't know what the value of a stock or mutual fund would be over that time period. But if you think that you could pick up a decent percentage gain in asset value and at least break even on the income front (before tax benefits), this isn't exactly a bad situation that you're in. Given what you've said so far, it's kind of an either/or... no truly bad options really. No home runs, but no strikeouts.

I don't know your personality or your age. If the thought of being a landlord gives you heart palpitations, then you should definitely sell - no matter the price. But if being a landlord has been a relatively painless experience, in my view, you could be sitting on a paid for $120K+ asset in 10 years that nets you around $800 a month, even if the rent never increases (not counting vacancy, credit loss or maintenance). If you took the $45K that you netted from the sale and went all-in on stocks now, assuming a 7% compounded annual average return (to make the quick & dirty math easy), you would roughly double your money in that time period - so $90K. But, they could find a waste disposal area under the property... or you could buy into the next Enron. No way to know the future.

Short answer after an admittedly long post (sorry), if it was me, unless I needed the money or already had a great investment lined up, I'd probably sit on it... if the area met my expectations.

Good luck with it, whatever path you choose.

It works in the low end of the market,you can even get 2% but no way on any property over $200k can you do that. I know Miami Beach had $1m condos for lease for $4500/mo in my building which after maintenance and taxes net you like $1500/mo but you do get significant capital gains.

just pull up a zip code map of your town and look for poor areas. $30-50k homes should all day be able to get you 1% or more

It just depends on whether you need the cash flow or not. Off the top of my head at 4.5% interest, which is high, $100,000 mortgage is $500/mo give or take and with that $150/mo or so should be principal. So if you charge $1000/mo after property taxes and mortgage and insurance, you should be making $200-300/mo + $150/mo in equity so in all seriousness thats not that bad a move. If you put 20% down you're out $20,000 and you're making give or take $450/mo or $5000/year between excess cash and equity. thats a 25% annual return on your cash, there really isnt much to complain about.

You can't go into real estate expecting to make a serious living unless you have a ton of cash, use it as a tool to build passive wealth and see it as a side game you do for fun until you have alot money and you'll enjoy it alot more.