Taking risk is a choice so weigh the numbers carefully.

I still drive my beater, but by choice.  

You don't give sellers multiple offers/choices at the same time....Present one if that doesn't work go onto the next, but don't let the seller choose up front...Geez

And how much bearing does those pros and cons have on making a choice for either?

This option is more of a personal preference and emotional choice, rather than just purely financial.2.

Your choice.  

Depending on your loan balance, you may be under water.If you will need to purchase another home to live in after the sale, and you purchase a home around $350,000, you may have to put down $70,000 and that will likely eat up all of your sale proceeds if any.So, it seems like the choice is to either to rent your current property for $285 cash flow, then purchase another home to live in from your savings, or sell the current property, then purchase another home to live in from your savings, or stay in your current property and buy a new rental property from your savings,I would stay in the current home, because you have already upgraded it to your liking, you would not have to go through the trouble of packing up everything and moving, you are already familiar with the neighborhood, and your savings could be invested in a new rental property with much better cash flow, with the tax advantages of interest and depreciation right offs, and with another property to get appreciation from. 

If I make full disclosure and provide the pamphlet, then it's the tenants choice to assume the risk... 

There choice not to pay is affecting others and needs to be taken care of.Hope you can get the issue worked out.

I don't know how to fund this endeavor or what the best choice would be for us.