To rent the home, I would lose about $2,500 per month (based on comparable rents in my area, property management fees, etc).Both options loose the same amount by roughly 2 years, and by this time, I still will not have built up much more equity in the home to make selling it a break even unless there is price appreciation by then.My dilemma is this: I speculate that my home will not appreciate much in the next 3-5 years due to the rapid pace of development in the surrounding area.In 5-10+ years, maybe, but by then I'll have bled $150,000 - $300,000.I have thought about this a lot and feel that I mar'-too close to the problem to see the best solution.

The 7 isles project hasn't even started.

Even if I do exact same thing I will have two houses instead of one to pay loan back.

You should have documented that in writing, but even a text message from him would likely hold up in court.You post the notice and give them the required amount of time.

I'd build up and go for at least 2 units but 3 stories is better. 3 story walk up apartments account for almost 65% of apartment developments round he country. this is what I'd recommend on your lot. this is 35' tall and we do it in columbus oh  Wow, I wish we had even $200/sq ft here in California.

Even at $2200 I don't expect to get a positive cash flow for the first year, but that's okay as long as I rent it out and learn from my mistakes for my next investments.

If he does pay, then you can just  cancel it but if he does not, you haven't wasted more time and have delayed the eviction process even longer. 

It’s been a long journey to get to this point, and we even had a failed attempt with another PMS (but I’ll keep those details to myself).

Quote from @Richard Bautista: Good evening,Just saw Cleveland, Ohio has relatively inexpensive houses which has the potential to cashflow.

Since Landlords are going to be monitored even more now with the price gouging issues surrounding the fires in LA, I would be extra cautious.