That will determine if you could sell it and use the money to buy a single family home or would need to take out a mortgage. 

What is the best way to best way to deal with the existing tenants? 

., Purchase Price: $475,000 ($197.9/sq. ft.).Estimated Market Value: $402,000 ($168/sq. ft.).Financing Terms: 2% interest rate, with a 9-year balloon.Unit B Income: $2,049/month (Section 8 tenant through November 2025).Unit A Income Potential: Similar rent or higher; Section 8 cap for the area is $3,234/month.Monthly Loan Payment (P+I): $1,386.Cash Flow Breakdown (if both units are rented at $2,049/month):Gross Rent: $4,098/month.Vacancy (10%): $410/month.Operating Expenses (37.3%): $1,376/month.Net Cash Flow: $943/month.Key QuestionsWould you be comfortable paying an 18% premium for financing at 2%, especially in a market where current mortgage rates are closer to 7%?

Most of the ones I bought had existing tenants and almost all were paying below market rents and way below market rents.

I can only come out of pocket to cover mortgage so long.  

Our tenants pay $2,700 in rent and the mortgage+fees comes out to $2,360.

Equity from sale can go to the new property AND a DST/TIC tax free as long as I have at least a mortgage/debt of 225k on that new property?

Sounds like they are dumping a bad 1031 property into a REIT and spreading the financial burden upon existing REIT members. 

I can't really afford to pay two mortgages.

keep in mind 2.9 % or really any mortgage in the 4's was a once in a investors lifetime situation.