In a challenging situation & unsure how to proceed with REI

[Tom Voigt]

Hi BiggerPockets forum! 

I’m currently in a bit of a challenging situation and am having doubts about real estate investing in general. I’d like to get advice from folks on here to get some expert opinions on how to proceed with my journey.

I currently have 2 SFH rentals in Ohio (one in Dayton and one in Franklin) that I bought pre-pandemic. The one in Franklin, OH has been cash flowing well, good tenants that pay on-time and keep the property in great shape. No concerns here. Mortgage is ~$650 and rent is $1,200, so all-in-all a decent investment.

The other property is in a bit of a rougher neighborhood in Dayton, OH which has been giving me a big headache over the past year. First the tenants stopped paying rent earlier last year, but my PM and the tenants were able to get approved for some kind of county support program that paid rent on behalf of the tenants. When that program ran out the rental income essentially stopped and the PM initiated the eviction process. The tenants were evicted, but left the property in a very bad shape. Repair costs were ~$13k to get the property back into rentable shape. I filed a claim with my property insurance for vandalism, since we had evidence of the tenants damaging the property on their way out, and the insurance approved $2k leaving me with about $11k in repair costs that I'd have to pay out of pocket. My mortgage is $460 and rent is $900. In other words, it would have taken years to recoup those expenses assuming there won't be another hiccup along the way, which seems unlikely given the neighborhood the property is in and the tenant it would attract. 

Net-net, I decided to use the insurance funds to have my PM do basic repairs needed to put the property on the market for sale. Repairs are currently ongoing and I am contemplating what my future in REI will look like going forward. I have decided to keep the other property in Franklin, since there are currently no issues. One challenge I see with my current REI strategy is that 2 properties are simply not enough to have economies of scale to weather issues. Perhaps that requires at least 5 or even 10 rentals to compensate for one bad rental?

Questions for the experts here:

1. Should I sell the problematic property and buy another property in a better area? I'd probably need to buy more to get economies of scale as mentioned above. Also, I am not sure what mortgage rates for investment properties are right now.

2. The other option is to sell the problematic property, abandon REI and use the proceeds to invest in an index fund. In that case I'd be left with one property.

I'd really appreciate some expert opinions on this as I am unsure where to go from here. Thank you in advance!