Appraisal came in 200k higher on Cash out Refi - What to do next?

[John Chambers]

Hello BP Fam!

I purchased a property that I was planning on being my primary in Huntsville, Al (35802). A year after purchase, I switched careers and had to move to another state. Didn't want to sell my first home, so I got it rented out and it became my first investment property. 

I'm working on doing a cash-out refi on the property now and the appraisal I just received is significantly higher that what the house would realistically sell for. (Great problem to have). Here is the details:

PP $285K @ 3.75% = 1650 month w/ escrow costs. 

Current Rents: 2100 (High-end for the market)

Appraisal $600k @ 4.75% = $2500 estimated monthly. (Appraiser used a nearby gated community that is not an accurate comp.)

Realistic sell price: $400-425k

What would you do when the appraisal is so high its not realistic for sell and if I pull out all the equity, the property won't cash flow as a rental. Is there a risk of going upside down if I pull everything out? I know at the next appraisal, the value will drop down to the 400ks. 

I have a unique opportunity where 'today' i have an extra 200k equity in the property. Whats the best way to leverage this? Any pitfalls I need to be aware of? 

Thanks

John