Sell your house at a loss or make it a rental?

[Thomas Dorwin]

I have a young friend, lets call him "Matt" who owns a 4 BR 2.5 BA in a northern VA city just outside Washington, DC.

Matt listed the house with an agent asking $439,000 and hopes to sell it at $430,000.  He is upside down on the property owing $427,000, and is also carrying a note with his credit union for $60,000 in improvements he made on the property in the last year and a half.  If he sells, he takes a total loss of $78,000. He has a rock star 3.25% 30 yr VA loan. The house is in great shape in a good neighborhood.

He is moving into one of his in-law's nearby rentals, rent free,  There is no pressure to sell other than he wants to get it sold, take the "hit" while interest rates are good, thinking doing so will "clear" him to invest in FL real estate (his dream) sooner.  He figures its better to absorb the loss because he and his spouse clear about $10,000 a month (combined) from their jobs and figure they can pay off the debt in 2 to 3 years. 

I suggested turning the property into a rental.  My thinking is he can get depreciation and some favorable tax treatment by turning it into an investment/rental against all of that earned income, and learn about being a landlord (a goal of his) as well. 

I think he can get rents close to the mortgage amount ($2500), he thinks more like $2000, but my point to him is even if he sustains a loss of $500 a month, he could do that for about 12.5 years (150 months) before he will have sustained that $78,000 loss - and in the meantime he will have (most likely) had appreciation on the house, and depreciation and business loss against earned income for all that time,  So I think he comes out way ahead. 

Thoughts?  Am I steering him wrong to hold it and make it a rental?