The architect and I have been thinking the exact same thing, with all the people looking to build/ live in this area we could sell just about anything under 500k instantly.

Long term I do see this property being a great asset so we don't want to sell necessarily.

Later on decided to sell it.

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Depends on so many factors: - What it yields- What you're trying to achieve- What headache factors you're willing or not willing to have - What tax implications come from selling (and if you have to replace your debt in a 1031 exchange)With 1.7-1.9mil that would be a 6-10 unit out here in Reno, NV that with cash could produce probably a 6-7 cap with upsides in rents. 

You might get them to do all the legal work to take it and then sell it to you.

In both cases, the tenant should be educated on their responsibilities and held accountable.Even if the water source were a leaking pipe or roof, you should be able to identify the problem, dry it out, and remove the mold professionally within a few days and then the problem goes away.Simply accepting the tenant's claim - without verification - and allowing them to break the lease without penalty is a bad policy that will cost you much more in the long run.

Or is the idea of a purchase to rehab and sell more appealing?

Look for an agent with a proven track record of successfully selling properties in your target market.

Sell this property.