It depends on the person's long-term goals. Hard to tell someone what to do because everyone's wants and needs are different.
These are my thoughts:
1. Sell the rental property because the market is really good right now to sell and your profit will be high.
2. Use proceeds to pay off primary residence.
3. Wait for market to crash to buy another property with the remaining profit (but it's a risk because there may not be a housing crash again, so, if you were to get another property, you'd pay at a premium price unlike the price you paid in 2015 at $160K for your rental). Or, invest the remaining profit in the stock market or put into a safe interest-bearing fund/account (with at least a 3% return.)
Other thoughts:
- If you don't mind being a landlord, I'd keep the rental for long-term rent income. Plus, hopefully the price of your rental will just keep going up, so you'll profit in the long-run either way, if you wait to sell when it's favorable in the future. And you get that $400 monthly income flowing in still.