Does my current rental need rehabed to sell and maximize profit

[Jason Koehl]

I have a single family house in Ann Arbor, MI that I used to live in but renting it out since around 2011. It's been an easy rental with just two families renting it since I moved out. This house was built in 1964 and has had only minor updates as needed like a new bathtub when it was leaking. The kitchen is still original and outdated.
The zillow/trulia value is about $348,000 and homes in my area are selling at about $200 per square foot but depends on finishes. I'm receiving $2050 in rent.  The taxes and insurance cost about 600 per month. My equity is high since I've been paying it off for many years and with appreciation over the years. 

My current tenants are great but they have a few cats and a dog so the house smells like the animals. I've considered approaching my current tenants about possibly buying it but not confident on what appraisal will be with current finishes.The carpet is in bad shape, the wood floors are very worn and the kitchen is out dated.  I believe 35K could give it a new kitchen, new carpet and redo the wood floors.

I'm trying to decide between 3 options.  

1. Keep it and continue renting it

2. Do I need to rehab it in order to maximize the value and get an good appraisal

3. Sell it as is but my concern is the appraisal will come in low

Any advice or insight is appreciated

Thanks