If the property can be sold, pursue a short sale for its current value whatever that may be after considering the cost to remedy these issues. 

Our rental is paid for and has rental income of $2200 month and our primary has a mortgage of $1800 so we are currently living for free basically.we have a credit line on our rental for $275k and recently got a letter from our mortgage company offering a cash out refi on our primary of approx $300k and still be able to keep our current interest rate on the remaining balance of the mortgage which is mid 3 %.We are trying to grow our rentals and struggling to figure out the best way to do that.

I cash flow about 7k a month after expenses. 

Lenders will want to see 2 active open trade-lines for the past 24 months with on time monthly payments or a credit reference letter from a creditor. 

DPA's can cover the down payment and closing costs the tough part is getting a seller to accept the offer over a buyer who is either paying "All cash" or one with a larger down payment.

If it’s a completely separate unit in a multifamily, typically tenants are responsible for utilities to streamline your costs as much as possible.

If you were to wait until the lease ends, can you afford to carry the costs of the property until sold?

Adding  about 2.5% closing cost of 17.5k will bring you to about 50.5k (rough estimate) out of pocket. 

I expect to add to the cost of the replacement property.

I receive $2200 a month in rent.