Every property in your portfolio should periodically re-win its place. The question isn't "is this property fine?" — it's "if I had this equity as cash today, would I buy this property with it?" Inertia holds more bad positions than analysis ever chose, and an exit decided by numbers beats one forced by circumstances.
The metric: return on equity
Cash-on-cash measured your return on the cash you originally invested; return on equity (ROE) measures this year's total return (cash flow + principal paydown + realistic appreciation) against what your equity is worth NOW. Appreciation quietly kills ROE: a property that doubled in value while rent rose 20% might earn 4% on its trapped equity — capital that could earn 8–10% redeployed. Compute ROE annually per property; a falling number is the signal to consider an exit.
The three exits
Sell outright: cleanest, but triggers capital gains and depreciation recapture (often 20–30% of the gain combined — CPA math) plus selling costs of 6–8%; right when the property underperforms structurally or the equity has a clearly better home. 1031 exchange: sell and roll the full proceeds into a better property, deferring the tax — right when you want different real estate, not less real estate. Cash-out refinance: extract equity tax-free as loan proceeds, keep the asset — right when the property itself is worth keeping and cash flow supports the bigger payment. Fourth option, underrated: keep holding, when the ROE honestly justifies it.
Worked example
A rental bought for $210,000 is now worth $400,000 with a $120,000 loan — $280,000 of equity. It cash-flows $7,200/year plus $3,400 principal paydown; assume 2% appreciation ($8,000). ROE ≈ $18,600 ÷ $280,000 = 6.6%. A cash-out refinance to 65% LTV frees ~$140,000 tax-free; the higher payment cuts cash flow to ~$1,800, but the freed capital buys a small multifamily earning 9% ($12,600). Combined position: ~$25,800/year on the same equity — a third more, without selling or paying tax.
When this rule of thumb breaks
ROE math ignores what spreadsheets can't see: a low-maintenance property with a great tenant has option value that a "better-returning" acquisition with execution risk may not beat. Transaction costs and taxes mean small ROE gaps (1–2%) rarely justify a move. Refinance exits fail if the new payment breaks cash flow — extracting equity from a thin property manufactures a problem. Estate planning cuts the other way: under current law, held-until-death property passes with a stepped-up basis that erases deferred gains, which can make "never sell" the mathematically correct exit. Run the sell/1031/refi/hold comparison with a CPA when the numbers are large.