So you will be leaving 40K tied up to earn that extra 10K or 14K; is getting that extra amount worth leaving that 40K tied up, or could you put that 40K to work right away in the next property where you could reap that extra 10K or 14K much sooner than waiting for the seller financed buyer to do their refi?

You now have to decide if you would rather have a little higher cash flow now or the flexibility to create even more cash flow sooner.

I've done both and am kicking myself for not doing cash out refinances sooner.

Sure, you can live in a nicer house than what you could otherwise afford since your monthly payments are less - but someone has to pay the principle sooner or later.

I feel like sooner or later my houses are going to drop down between 118-160k in a year or two.

The tenants would have seen them much sooner than 6 months if they were there before.  

I believe if your think like your back is against the wall now instead of when a good deal comes around you should find your answer sooner rather than later.

If this was owner occupied you might be able to end PMI sooner with the equity, but kind of mute point for investments.

The rental income is something that comes in quarterly and is tangible sooner.

I would start talking to a CPA sooner rather than later.