And finally, of course, the last option is to just keep saving and waiting until you can afford the house you want.

You will then have a few options with that rent money....you can put it into principal or you can start saving it to purchase yet another property.

The selling option on a short term property, for me, is paramount to going to the casino. 

We always teach Lease Options first because they are the easiest and safest.

Looking at the rough numbers and we are comparing apples to apples ie: area and appreciation, I think the first is a better option because the cash on cash return from the investment cost to rent ratio.

As previously mentioned, Cash for Keys may be an option.

I'm not telling you NOT to improve/upgrade the property, but I'd exhaust all free/cheap options to market it as-is first.

I would probably keep the other house regardless of what I do because of the low interest rate.I am now wondering if I should hire a Qualified Intermediary (my realtor calls this an "Accomodater") so I have the option to buy a one level rental, stay where I am at, and if in the future I am unable to live in the two level home I am currently living in (our second home that is my primary residence), convert the rental to a primary residence.

Better yet- buy something with a reasonable value add, which gives you more options at refi time due to the equity you build. 

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