Iraklion starts as a city. Leave it there. Prior to the patch, the enemy would never invade it. After the patch they will, but it can still be held as a city and it won't make any money at all as a castle. Add in the fact that you need a navy to ship troops to and from the isle, and it's not worth keeping as a castle. In fact, I recommend that no city on an island be a castle, with the possible exception of Palermo, and that only because you can walk if necessary from Palermo up through Italy.