Ways to attack this problem?

[Karyn T.]

So here's our strange little situation, with a bit of a back story...

In 2006 I was entering my medical residency. My DH and I bought a cosmetic "fixer upper" in a decent neighborhood near my hospital on the East coast. We put some sweat equity in, and thought that we would be doing just fine, and certainly breaking even, in 4 years, if we decided/needed to move after residency was done. Of course, the market tanked, and even though we were better off than most in our neighborhood (we were down $135K to their 400K....) when our 4 years were up, like millions of others, we were upside down.

We rented it out, from 3000 miles away, for the next year...but the market wouldn't support a rent that would actually cover the mortgage, taxes, etc. We were losing ~$1000/month the entire year...and I was paying to live in a rental on the West coast in the meantime. Banks wouldn't consider us for a 2nd mortgage because the rental hadn't shown a 2-year income yet. We were stuck, and bleeding money. We asked the tenant to move out and decided to take our chances on the market, and dump the house, even if we had to take a short sale (we had / still have "perfect" credit)...it was just too stressful to keep dealing with it.

Tenant moved out...and a weekend later the house got hit by Hurricane Irene. Seriously. 5 months later, the roof, etc was finally fixed, the contractor (who was remarkably awesome!) was paid. It was a helluva year.

To get out of the house, we eventually accepted an offer $60K less than the mortgage and we took out a 0% interest/60-month deficiency loan with the mortgage company. We still owe $38K on that.....but preserved our good credit. Yay..... :/

Fast forward to Fall 2012, after renting for 2 years, we finally pony up to buy a new house using hubbie's VA benefits. We found a good deal on a "view" home that we picked up for $35K less than what the prior owners paid for it in 2001. We figured by staying in this house a few years (or forever.....) it would somehow make up for the fiasco of the last one...

But now I'm in a career transition where potential loss of income or need to move to a new area / state may happen sooner than later. We've met with our prior RE agent and she is confident that, if we sell, we could at least break even, and even make a few thousand dollars, but no real profit....but that renting for the total of our monthly mortgage might be a hard sell.

This house is 98 years old, in great shape, in a designated historic neighborhood, on the nicest street (on the view side) in town. It WILL appreciate (it was appraised at $1.2M just 4 years ago....we got it for MUCH, MUCH less than that...).

My gut is to hang on to this house, come hell or high water...but I know renting it out for less than the mortgage doesn't make any business sense.

My job is such that my income WILL stabilize, sooner than later, so I can "afford" to eat a loss for a little while.

Please don't kill me....I'm looking for options, opinions, and ideas...not criticism about the past. We were up against a rock and a hard place and we decided to "do the right thing" and not walk away from our debt obligations....

(Oh, and if we rent it out, we're going to be in that odd "no-second-loan" land again....which is part of the reason I'm here.)