Low ROE - Debating selling to invest in stocks or payoff loan

[Rob White]

I have a rental property making $1250 in monthly cashflow. If I payoff the mortgage of $265k  at 4.375% (home is worth 1.25 million purchased in 2014), my cashflow jumps to $3800 per month. Because my equity is high, my ROE is low, but seems to make a boost on ROE if I payoff the remaining mortgage, which surprised me. Also I do realize I would lose the tax benefits and also the tenant paying down the mortgage monthly etc, if I sell.

I have an unused HELCO on the property for $150k, and dont want to refinance. Because my ROE is so low now at about 1.8% and I can't tap into that locked up equity im debating selling so I can put that locked up equity in the stock market for an average gain of 7%.  I do realize I would lose about 25% of the money in the sale in taxes and depreciation recapture. But seems the growth in the long run of stocks over my low ROE might make it worth while and would have less landlord issues with the property being sold. I also realize I could do a 1031, but I dont see any deals in areas on the mainland US that make sense to me and Cap rates are low there and here in Hawaii.
Im torn between paying off the mortgage for a nice cashflow of $3800 per month (ROE of 3.8%), or selling to put roughly 700,000 k in the market and working the 4% FIRE rule with that money after letting it grow for a bit. If anyone has been in a similar situation, or has some insight, please let me know. Would be greatly appreciated!