Are we being short-sighted by thinking we should sell our Condo?

[Christopher McCarthy]

I'll try to keep this short, sweet, and to the point. My wife and I live in a small condo in Orange County, CA. We purchased it in 2014 for $320k. The last comp sold for $455 a couple weeks ago. We now have a family that is still growing, so we needed some more space. The condo is 900 sq ft, 2 bed 2 bath. We are in escrow now on a larger place about an hour away.

I was raised under the idea that real estate is a great wealth builder, and if you can keep your properties, keep them. However, when I run the numbers, I can't seem to convince myself that keeping it is the right play.

The numbers:

Market rent for our area: $2,200/mo

Principle and Interest: $927/mo

Taxes, Insurance, HOA: $687/mo

Estimated Vacancy, Repairs, and other misc items: $321/mo

Net cash flow after reporting income, write offs, and depreciation comes out to about $1,000 per year

$1,000 per year on about $100k in equity paid thus far is about a 1% cash on cash return. To me, that feels like my money is better invested elsewhere. One part of me says sell the property for a tax-free gain after the last year's RE craze and find an opportunity elsewhere that will yield better returns. The other part of me is saying we have a great property with a well-run HOA, in a great location that appreciates nicely and has no problem getting an array of renters. Once it's paid off, we see some arbitrage because there is no longer a debt service. That being said, there's less we can write off against the income, but we are still making better returns than we are today.

I'd love some advice or maybe a fresh perspective. I'd hate to regret selling the condo down the road, but I also like the idea of not being a landlord again (we have rented this place in the past and had a bad experience). Renters in CA are also very protected, and can be difficult to remove if a bad egg comes along.

I'll avoid any more rambling, and can answer any questions that arise. Thanks in advance for any insight.