[inishowen]

Since I'm in the same boat heres my two cents assuming that you don't want to sell your home for a long while: My guess is that your rental income covers the nut on the rental property plus a little extra, but the extra is not enough to change your lifestyle at all (meaning you wouldn't miss it if it wasn't there). You have $255k in debt. I'd put the rental into an LLC, refinance both properties shifting as much of that debt as possible onto the income-producing rental (every $60 in positive rental cash flow qualifies you for an add'l $10k in mortgage debt). You'll probably be left with a little more than $100k in debt on your non-income producing home. Set up a separate account. Into that separate account deposit what your currently paying in mortgage payments on your home less what your new mortgate payment will be. This way you are not giving up any tax benefits and are paying yourself every month as long as you keep the unit/s rented. 10-15 years from now you'll have very little debt left on your home, a solid number in your separate account if you haven't invested it elsewhere, and a rental that has equity build up with little $ input from you.

Or, sell your home, capture approx $600k in equity after expenses. You'll pay less in cap gains taxes by using the $500k primary residence exemption, buy a cheaper home (which probably isn't an option in SoCal) and invest the difference.

I wouldn't buy another rental property in this market unless it was a complete steal. Just my two cents