when to short sale?

[RJ Laskin]

I'm trying to understand when the proper time might be to throw in the towel and jump into a short sale.

We purchased for 450k in 2006 at market peak, lived in the house until 2011, and then rented it out for $1400.00 which is the going rate for the el paso/cruces area hoping the housing and rental market would rebound. That rebound never came. With 419k still owed and a 350k market value, a short sale seems to make the most sense. The current interest rate is 4.25%. Our current tenant is prepared to pay $1600.00 but that still leaves about -$500.00 per month.  When does one quit? Is there any reason to keep waiting?