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But he can continue to depreciate his property (for tax reasons), collect rent, build up equity in the 2 properties he has, and have a secondary income stream.
However, as you mentioned, to assess whether a real estate deal is worth it or not, he should consider what the 10 year treasury note yield is and make sure that his real estate deal will bring in a realized yield higher than this. Otherwise, why take the risk of doing this vs getting a sure rate from the treasury note with zero risk?
Lastly, he may have bought a new property as opposed to using that money for other investment vehicles because buying a new property allows tax to be deferred through a 1031 exchange (and I can’t imagine the taxes due on $1M in California)
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