This is because it was purchased to be a good home and not necessarily a good rental.If I were to invest OOS:I would not choose the highest cash flow Midwest locals but would look for a location with increasing population and constrained in some way in their RE growth prospects. 

My question is does it make sense to hold a single family in a market that the rentals are low compared to the sell price and focus on the long term value increasing or should I sell and have a clean start in a new state?

There are 7 protected classes at the federal level.Race, color, disability, religion, sex, familial status and national origin.Here in MA, we have 15.  

We immediately gave 30 days notice that the rent would increase to $300/ month.

You can find duplexes in those areas that need some work for around $150-200k that will already be cashflowing and with some renovations can increase cashflow.I've done this and on my first duplex, I was able to get a $25k line of credit which I used to purchase another duplex. 

That is negative $100 cash flow.To continue to hold, I could refinance to lower mortgage to about $1000, increase rent to $1600, cancel pool service and cash flow about $360.Or terminate lease for a struggling single mom and take the cash to turn into a larger investment. 

Higher quality laminate will increase the cost, but shouldn't increase the install cost. 

Everything else, any motivators and techniques you pick up and employ to increase or 10X your life and productivity are a bonus. 

As the market gets stronger and rates increase, having a property that is renovated, stable and cash flowing might turn out to be a great long term hold for you.

If the deal falls through and IF they did nice work on the property then they have increased the value of the investment for you.