Rent 1 Bedroom Apt vs. Live in 2 Bedroom Condo (owned)

[Less_Is_More78]

My spouse and I are selling our expensive 3 bed/2bath condo in a large city where we live and we are moving as soon as we sell.
We have two housing options after we sell. Move into our 2 bed/2 bath condo (previously just owned by me) that we are currently renting out which is located in an "up and coming" neighborhood and farther from our jobs or do we move into a 1 bedroom rental, closer to our jobs and in a better neighborhood. Below is a list of financial comparison and a list of pros vs. cons. Any comments/suggestions are always welcomed! I have thick skin so don't hold back.
Monthly Expenses Comparison:
2 bed/2 bath condo in "up and coming neighborhood":

Mortgage and Taxes: $1400

Condo Assessments (include insurance and gas heat): $250

Electric Bill: $100

Condo Repairs: $100

Parking Space Rent: -$90 (we own 1 spot that we would rent out for extra money)

Tax Deduction from Interest/Taxes: -$200 (this how much I would save in taxes each month after deducting mortgage interest and property taxes)

Total Housing Expenses: $1560
1 Bedroom/1 Bath Rental in Great Neighborhood, Close to work:

Rent/Utilities Budget: $1500

2 Bed/2 Bath Condo Monthly Loss because rent income is less than expenses: (Rent Income – Condo Expenses Mortgage/Taxes/Assessments/Repairs): $250

Total Housing Expenses: $1750
Living in 2 bed/2 bath condo
Pros:

- Living in a owned condo and not a rental (no landlord, no management company)

- Larger space: 2 bedrooms vs. 1 bedroom place and 2 bathrooms vs. 1 bathroom

- In unit washer and dryer instead of communal washer and dryer

- Very quiet place (no worries about noise above/below unsure what the situation will be in a rental)

- Reduced expenses $190 less each month ($6,840 total less over 3 years)

- Reduced liability from not being a landlord

- Reduced stress from being a landlord, searching and finding a tenets, damages to unit, vacanies, etc.

- Larger size home can accommodate children (no children yet, but we are planning on having them within 3 years, have to get finances in order first) thus there will be no need to move after having them where we would need to if we lived in a one bedroom place.

- Located across the street from free recreation such as tennis courts, pool, playground, and park
Cons:

- Neighborhood is not as nice, convienent or safe

- Higher crime rate neighborhood

- Longer commute to work for me (20 minutes longer each way, 40 minutes longer total each day)

- Farther from grocery store: 0.9 miles to the closet grocery store compared to 0.4 miles away (we sold one car and we are selling the other one so we will be "carless" soon)

- Although 2 bed/2 bath is larger which may seem like an advantage, the larger the space will allow us to consume more, utlities, fill the space with crap, etc. although we are planning on having children in <3 years
In summary, do we choose the better neighborhood, more expensive monthy expenses ($190 more each month), for a smaller space or do we choose the more inconvienent, larger, cheaper place that can accomodate children?
FYI: we cannot sell the 2 bed/2 bath condo without taking a huge loss (>$60,000). I bought the condo before I discovered ERE.
Thanks for your comments.

[aquadump]

To my understanding, this seems like a question more of economics than finance. What do you value more, $200 in savings, less overall hassle, and more space, or the conveniences and increased amenities in location?
There are times I would choose Option 1 and times I would choose Option 2. You're not married to your decision, you can always change it in the future.

[George the original one]

Presumably the rent could be ratcheted up on the owned condo? If so, that would make the two choices closer in cost.
Like rePete said, there are times/reasons to choose either option and it really comes down to what you value today.
So how much do you value not being a landlord? How much do you value neighborhood safety? How much do you value shortening the commute? What is the liklihood of starting a family sooner than planned?
If it were me, I'd not want to be living in a higher crime area when raising children and the other considerations would be second place.

[Less_Is_More78]

Very helpful comments thus far, thank you.
As far as ratching up the rent, $1500 rental income for the 2 bed/2 bath condo is the max I can get, it might only be $1400 a month.
Again, thank you.

[DC Waffler]

I think renting out the condo might be closer to break even than $250. I would treat the $200 tax deduction as "income" from the rental. In fact, it could be more than $200, since the condo fees might become a deductible expense, and you have to depreciate the property. I'm not a tax expert, but it is my understanding that even if you don't depreciate it, you will still have to pay depreciation recapture to the IRS when you sell.
On the other hand, I would add in another $100 or so per month to your expenses to cover vacancies, assuming 1 months vacancy every year, and miscellaneous such as licensing fees to the city.
Can you rent the parking space independently of the condo for $90? Or rent it to the tenant for an lesser amount?
If you stay in the condo which is further from shopping and work, will you be able to remain car free with a baby?
Will you want to be a landlord with (a) baby(ies)? Will you want to be a landlord without a car?
If it were me, if I could get the condo rental to break even/make a small profit, I would pick the 1br in the great neighborhood. I would try make it work with a baby. After all, if you aren't buying a bunch of junk, babies don't take up that much space until they start walking. I shared a one bedroom with a roommate many yrs ago. We closed off the living room, and one of us took the living room, and we used the large kitchen/dining room as the common living area and entry. Could you find a 1br with a small, separate dining room and do something similar? When the baby starts needing more space, I would decide whether not to renew the tenants lease and move back to the condo, or move to a third location.
EDIT: I think the depreciation recapture only comes into play if you sell at a profit.

[Less_Is_More78]

Thank you for comments/questions. Here are my responses:
Can you rent the parking space independently of the condo for $90? Yes
Or rent it to the tenant for an lesser amount? Yes, I could
If you stay in the condo which is further from shopping and work, will you be able to remain car free with a baby? Probably not. I think I will need a car regardless where I live after I become a Dad.
Will you want to be a landlord with (a) baby(ies)? Sure, that does not bother me.

Will you want to be a landlord without a car? Sure, that does not bother me either.
Could you find a 1br with a small, separate dining room and do something similar? Not sure, but worth looking into.
Thanks again.