2008 – OK. Since you have good credit and increasing income you have to weigh the potential future prospect of losses and carrying costs versus the guaranteed loss of selling now in the weakest market in over a decade.
Your property is already down 25%. What’s the opportunity cost of spending the 70K to unload the property versus spreading that out via negative income over the next decade ?
Assuming you make less than 150K, you’ll get a decent tax break on the rental loss. Including depreciation, I’m guessing you’ll likely get a tax loss of about 16-18K per year, saving you up to about 6K in taxes. (Depreciation of a 275K condo would equate to 10K per year in depreciation loss for tax purposes).
If your loan were a fixed rate loan and you were negative $500 per month as a rental I would recommend keeping the property at this point. The problem is that you do not know what your payments will be in 2010. You need to know this and project out what it would likely be.
The worst thing to do in my opinion would be to keep it for now, then unload it in 2010 when your payment resets and you can’t afford the escalated payment at a point when the market is near its lows another 10 or 15 % below today’s value.
