Last year I bought my first property at a foreclosure sale in Dane county, a small 2 bed 1 bath condo on the east side of Madison.

Purchase price: $320,000 Currently have a long term renter, the rent pays the mortgage and other expenses but provides no cash flow.

Additionally, while rates aren't historically bad right now, they are higher than 4-5 years ago, and they will be even higher for you as an investor than they were as an owner occupant, which is what you were when you bought originally.I get that you are anxious to add to your portfolio, but that could be achieved without touching your first golden goose.Sometimes on BP, the push is to leverage every last spare penny, but that can be a risky game as the markets shift. 

Last short term rental we put on the market was booked for a 30 day stay first day on the market.

What’s your long-term plan for the cash?

As long as the business portion of the land is at least equal to the amount of your sale  that would satisfy your exchange. 

Say you get to keep 6-7k after tax.I like Option A all day long. 

Is it more profitable than long term rentals?

As long as you're filing jointly, both meeting the 2 yr use test, and either meeting the ownership test, then the full $500k can be claimed. 

Many areas have experienced a moderate slowdown last year, and are temporarily (my opinion) stable, and seem poised to soften from the high prices we have seen in the past couple of years.