What should I do with this Chicago 2-flat (duplex)?

[Rick Fowler]

I bought this Chicago duplex to live in just before the market topped in 2006. Then I lived in it while the market tanked, and I rented both units when I moved to Colorado because I couldn't afford to sell it. Now it's fully rented - never had a vacancy. But since I bought it too high, it's negative cash flow. By the time I file my tax return, it's close to breakeven for the year, but it's negative real cash flow about $500 monthly. This is a terrific neighborhood for rentals, and duplex conversions to SFR are common in this area. (North Center/Lincoln Square if you know Chicago. Major cross streets, Western and Montrose) The market is coming back - it's about 10% down from when I bought it. Finishes are rental level, and I have raised rents on turnover. Equity is about 10%. This market will probably appreciate - it's established and solid - came back much before many other Chicago neighborhoods. But it's not going to be a screamer probably ever.

Bigger picture, my major goal is to build passive cash flow for the long term. This albatross raises my DTI, so adding new rentals to my portfolio is tough (as far as I know).

Two loans on it
380k at 5.125%
80k at 4.75%

I refi'd it in 2010 when banks were rushing to do refi's before the government made them do something drastic.

I would have to bring about 60k to get the loan balance down enough that a 4% loan would bring cash flow to breakeven. That includes discounting the soft expenses (vacancy = 0, which is true, reserve is 0, maintenance is 50/month, management is 120/month).

One more kicker. Since I have taken depreciation every year, I will have a sizable tax bill when I sell it even if there are no sales proceeds.

I'm looking for some ideas about what to do with this property. Address is 2471 W. Pensacola Ave., Chicago, IL, 60618.

Sell it?

Exchange?

Hold it and raise rents?

Lease option?

Something else?

I'm looking for any ideas. Thanks!