I agree with the others who said you should sell the house. 

We have one property already as our primary home with a plan to buy another house and rent out this one.

We will be rebuilding the house that burned down. 

.- Do you have 200-250k cash, or is that what you can get with your loan amount?

You could also buy a single family property that you can either fix and flip or house hack.

There you will be asked your criteria and then after answering a few questions you will be matched with 3-5 agents or loan officers in your area.

Required good credit, adequate reserves, full doc commercial loan with a personal guarantee.  

These names frequently come up in investor circles because of their reliability.Speak Directly to Their Team: Legitimate lenders will have knowledgeable representatives willing to explain their loan products and processes in detail.

And you are wondering if you should spend lets say $125,000 on a house you have never seen ? 

You can allocate those proceeds any way you want - as equal down payments or buy one for cash and others with loans - It doesn't matter a bit as long as you use all of the cash and purchase at least as much as you sell.