What would you do?

[Joshua S.]

Howdy,

I'm soliciting opinions on a property we purchased in 2008 as our primary residence. In 2010 we moved across town and after attempting to sell it for ~6 months, we took in a renter who has occupied it since. I expect them to stay in the property until the summer of 2014. They take very good care of the property.

2008 Purchase Price: $145,000
Investment: $11,500 (5% Down + Closing Costs)
Today's Market Value: $150,000

Rent: $1,200/Month (Market Rate Likely $1,250-$1,350)
1st Mortgage: $535/Month, $110K Balance @ 4.0%
2nd Mortgage: $156/Month, $20K Balance @ 7.75%

Annual Property Taxes: $3,300
Annual Insurance Premium: $550

We're currently adding to our portfolio of investment properties and have a buy-and-hold strategy with a primary emphasis on cash flow with property appreciation secondary. If you woke up in my shoes tomorrow morning, what would you do? Keep the house, sell it and reinvest elsewhere, payoff the 2nd mortgage, or something else?