He found that the moisture levels in the walls are extremely high, indicating significant damage.

Coffered ceilings, low corner additions etc.Anyone can slap lipstick on a pig, looking for high value add in high demand markets is where the $ is.

Key Questions:Would it be more financially prudent to sell the rental property and pay off a chunk of my high-interest primary mortgage (7.375%), and use the remainder for a fix and flip?

With 7 properties I would highly suggest getting a PM software to help you.

The profit was used to buy a higher quality SFH in the same area.

Not to mention sky-high drama factor.

The other factor that's relevant for me is that my husband is a high end W-2 wage earner and we could greatly benefit from the potential tax benefits of actively managing the property. 

Understanding your top priorities can help in determining whether Stessa, Baselane, or another tool might best fit your needs.If you're comfortable with apartments.co for rent collection but want higher yields on your cash (this is me reading between the lines) you could have the transfers go into a high yield business account like BlueVine 1.5% interest or something like CapitalOne 3.9%.

My main concern is the interest rates being so high now as to whether what I'm hoping to achieve is really even possible. 

I highly recommend you create an "Animal Addendum" which is a set of rules for any animal, whether it's a pet or service animal.