Should I sell my only Investment Property

[Phillip R.]

This is my second post, so forgive me if I don't provide all the necessary useful information for you all to help me make this decision. I've also been running the numbers the last few days, so errors in my calculations of cap rate, ROI are possible.

I bought a 3 BR 3.5 Bath townhouse in Alexandria, VA (in the DC metro area) for $280,000 in 2009 as my home. I converted it to a rental in 2012 when I moved to Germany for my job. I will probably not return to live in the house when I return from Germany in the next 2-3 years, but it is possible.

Gross annual rent: $24,000

Operating expenses: $7,300

NOI: $16,700

Mortgage interest ($250,000 x 15 years @ 3.25%): $7,460

Principal Payments: $13,620

Total Debt Service: $21,080

Cash Flow: $-4,380

Cap Rate: 6%

COC ROI: -15.56%

Original purchase price (2009): $280,000

Approximate current price (2013-2014): $340,000-$370,000

I still haven't figured out how to accurately determine my investment basis (and total ROI) since I'm not starting from year 1.

The property could probably easily sell for $340,000 based on nearby comps. My real estate agent/property manager says it could sell for as much as $370,000 in the spring, but I'm not counting on that.

Here's the interesting situation. The two tenants I've had so far are diplomats and they rotate out each year and their replacement has taken it over. The current tenant has already asked if his replacement can continue renting when he leaves in March 2014.

There are of course extra risks with renting to diplomats because they have diplomatic immunity and can't be taken to court or evicted. However, I haven't heard any stories of diplomats in the area not paying rents, so I took a chance on them. They have paid on time the past two years and have been generally great tenants. They have told my real estate agent/property manager that it's been difficult for them to find a rental in the past.

Market rents are in the $24,000-$25,200 range, but my thinking is that these diplomats probably don't want to look for another rental unit as that would cost them extra to get an agent and not all landlords want to rent to diplomats because of diplomatic immunity. Also, their embassy pays all costs so the tenants might not care as much about how much the rent is. So, I think I might be able to charge a higher than market rent to them.

As you can see, I'm currently negative cash flow, but that's partially from using a 15 year mortgage.

Should I sell? Should I continue to rent to the diplomats? If so, should I hike the rent up? How much?

Any and all thoughts would be greatly appreciated.