To rent or sell existing home after purchase of new home in Southern California

[Matthew G.]

I'm sure this question comes up often when people upgrade to a new home but don't need to sell their existing home as a contingency. I'm looking for advice on the following scenario. 

Party decides to buy new home and is contemplating selling or renting existing home. The existing home is worth approx $1,000,000 and has a mortgage balance of $490,000. Mortgage, property tax, insurance, gardener, and pool guy run a total of $3,600/month. The home is turn key having been completely stripped down to the studs and rebuilt 2 years ago. The home is located in a beach community in southern California with higher than average appreciation rates. Based on current amortization schedule the current monthly principle reduction is around $1,100 per month.

The home has some other unique features that are rare in the area such as a private double sized lot. The owner has been told that rents for a home like this could fall into the $3,600-$4,000 per month range living little room for emergency improvements/maintenance etc. Monthly cost for property management company is $150.

For all you buy and hold investors out there would you consider renting a property like this situation knowing that the mortgage is getting paid and where the appreciation trends are at in southern California? I calculated the yearly principle reduction at approx $13,200 which is around 3% of the equity in the property. In researching the average trends for southern California beach communities in the last 20 years I found a 4% annual appreciation on average for the area. 

7% return is not amazingly appealing but I know southern California real estate plays by a whole different set of rules. 

In keeping and renting the property there is also the option of refinancing the loan which will insure cash flow but reset the amortization schedule and of course lengthen the payoff term. 

So what does the community think? Sell or Rent?

Thank you in advance for your investor feedback.