If the intent is not to put the house under contract and continue to accept more offers, and to fix the house up to show it to prospective buyers, I would be concerned.  

Our goals in real estate are to continue to obtain rental properties, currently looking at some duplexes in Sault Sainte Marie which is about 60 miles from us.

Plus there would be room to grow the value through improvements and updates.It had only been on the market for 2 days so I told my wife to call first thing in the morning to schedule a showing and maybe we could get it under contract before too many other people saw it.

Cap rates have been compressed as prices have continued to rise, but I know there are deals within and even outside of those ranges you state depending on what you are looking for when considering passive versus active investing. 

We decided to sell out of Dallas and focus on College Station/Bryan area because of growth. 

I'm just not sure that it has huge growth potential and the economic outlook is sluggish.

Staying with this deal, and continuously losing money is foolish. 

The only debt we have is the mortgages (2 rentals and our primary residence) so we're really battling psychology on whether it feels better to have zero debt moving forward or the cash flow from continuing to own rentals. 

If the loan documents don't set forth a process for the payments to adjust, then I would recommend continuing to make payments at the normal amount until you get it resolved.

It's questionable whether the IRS would classify this as a 'hobby' instead of a trade or business as its not continuous.