@Malcolm Brown it is great that you are thinking of the money to fund the deals you are going to get started with but understanding what a deal is, I think, should be the starting point. 

I had replacement coverage insurance and received about 300K to restore the house.  

If they do, your best bet is a local community bank that funds these types of properties.Another option is a private lender but that money will be pretty expensive, as mentioned 10%  + 

Should I use 401K to payoff mortgage and have that $2,000 as income OR take 4% of that 401K (only 8K) as income and keep the mortgage? 

I think it's very dependent on the property and market. 

I tried it in an apartment complex and it was an absolute dumpster fire and lost a lot of money.

Is it true that marketing and advertising to find motivated sellers could be thousands of dollars a month?

Dissolving the LLC and distributing the property to the former members as tenants in common and then selling is a relatively common practice in these situations. 

You are definitely going to want to get a lawyer and as soon as possible.This will sound harsh.In your story, you have made a number of very poor decisions about how you purchased and managed this property. 

I have been reading many books on finances, rentals, and real estate and feel this is an area I can have more "control" over my investment rather than placing it all in my 401k and hoping for the best.