You should sell it as fast as you can. You are losing money every day you hold onto it.
-W
What if I paid down the loan, would cost me around $30k, I could get around $900 a month.
Mortgage would then be around $530 so a net profit would be $370 a month before expenses.
I am having a hard time explaining to the wife why we should walk away from this house. She is really set on keeping it and renting it.
(Emphasis added.)
Okay, let's address that idea.
Any time you pay down a loan you're missing giant opportunity cost.
Let's look at an extreme example. Let's say you have a mortgage for one million dollars, and the monthly rent is $1000. After expenses you get $500 to service the loan. It's at 5%, so your P&I payment is ~5400/mo.
You are cash flow negative $4900/mo. You have to pay in that amount every month to break even on cash flow.
You should sell that property!
Then you inherit a million dollars after tax, or win it in the lotto, or whatever. You think "hey, I can pay off that loan and no longer be cash flow negative!"
...that's true. You could take the 1MM and pay off the loan. Now your cash flow is $500/mo (1000 rent - 500 expenses = 500, and no mortgage to pay). Alright.
But your return on that 1MM? 500*12/1MM = 0.6%. Under 1% return. Ugly.
The correct move in that case is to sell that house, and invest the million in a GOOD investment. Not to pay down a loan on a bad one. Get rid of the bad investment.
Your situation is similar, just not as extreme with the numbers. You could pay down that loan, sure. Or you could get rid of the house and use that money you'd pay it down with to invest in a good investment.