That my friends is arbitrage at it's best.

Run the numbers and ask yourself what the best option is.If you are basing rent on what mortgage payments would be for a $1.5M house, that isn't how it works. 

I thought this section would be the best place to start the reintegration process.

However, given its design and commercial-like feel—originally built as a retreat center with a strong Japanese influence—I’m uncertain about the best market to target for a sale.I’m hoping that someone in this group might have connections or advice on how to approach selling a property like this.

How can I best avoid such a set back? 

I would propose this to your realtor and see what they say, you can pay a percentage of the rehab budget or a set weekly rate 

Please advise on best route. -  After purchasing a home for what I feel was to much I am trying to determine the best route.

I know I can extract cash flow from the property even though the interest rate is not that good i can still cash flow some money and refinance in the future.

Mainly:Annual Depreciation (About $50,000 for 27.5 years)Mortgage paydownAbility to refinance and lower your payment when rates decreaseAbility to use tax deductions for rental property expensesAnd More!...

I dropped the rental rate last week and it is now below market rate but there are currently lots of active rentals on the market.