OK to Keep Negative Cash Flow Rental?

[Elizabeth Grahsl]

I converted my homestead condo in Uptown Dallas to a rental property 2 years ago when I married and moved, and I am hoping some experienced - and objective - investors can advise me about whether to sell or continue to hold it.  Here are the numbers:

Paid $145K in 2006 and I could sell for $180K today (I owe $90K).  If I sell by year end I can still treat it as a homestead and avoid any cap gain tax because I've lived there 2 out of the last 5 years. 

I am 4.5 years into a 15 year mortgage at 3.0%. Current cash flow is negative $110 a month, not including vacancies or maintenance (which are very low as the unit is in a very popular area, HVAC and hot water heater are new, and the HOA maintains the exterior). However, the mortgage is ticking down at nearly $600 a month, so holding it positively impacts my net worth.

I know negative cash flow is never ideal for a rental, but I also love how low maintenance this unit is. It was built in 1999 so building is in good condition and has a stable HOA. I can also see myself moving back into it one day if I ever get divorced or if my husband pre-deceases me - or if we run into hard times or want to save a ton of money fast we could squeeze in there together.

If I sold I would probably use the proceeds to pay off another rental mortgage I have that is at 5%.  Theoretically I could reinvest into other rentals, but the market is pretty frothy - and competitive - and it seems silly to sell a predicable easy rental just to bet on another that has also run way up in value over the last decade, even if the cash flow *could* be better.  Any thoughts??