One more point. There are many suggestions to sell and move on. I understand that selling at loss and moving on is one of the toughest things to do. It hits your ego and you have to admit that you took a wrong decision. Many of the comments address this particularly.
However, I have slightly different take. Lets say you think current market price of this property is 140K. Would you have bought it today for this price and with the cashflow after refinance ? If the answer is firm No, then you should sell.
Also, think about your best alternative. Lets say you sell. You have 38K equity now. Deduct 10K for improvement to sell. That leaves you with 28K. Deduct agents commission and closing costs, if applicable. That leaves you with say 22-25K. Now what are you going to do with this money ? If you are planning to invest is another residential property, you need to factor for closing costs there too. Suddenly your 38K equity is less than 20K. Are you going to get better cashflow/appreciation than the one which you would get if you refinance this one ?
In summary, this is what I would do.
1) Are you going to get refinance and make this property decent cashflow positive. If no, then sell
2) If you refinance, whatever cashflow you are going to get, are you going to get better cashflow/appreciation with 20K downpayment in similar properties. If yes, then sell
3) Otherwise, refinance and keep the property.
PS:- IMO, from the pure analytical standpoint, your purchase price is irrelevant. All that matters is current numbers and current alternative
