Selling now avoids capital gains tax and lets you reinvest into a new primary home and a solid rental property, which feels like the safer play given the cash flow challenges and ARM timeline.

The STR, if purely an appreciation play,  is speculation to me. 

Most gulf front investments are mostly appreciation plays unless you do a serious renovation.

It's good to hear that you want to play the long-term hold game as that is how you'll ultimately build equity.  

If you're aiming for growth and can secure a low-interest mortgage, financing might be the better play.

Playing the long game, it's not for those chasing rainbows, definently for the LT planned methodical focus. 

There's a high chance that you are feeling FOMO from the returns in public markets, sell your houses for a loss, pile into stocks, and then see mediocre performance while real estate heads back higher again.I see this, and similar actions, play out over and over.Personally, I'd stick with the real estate rather than selling it.

I have been through the BK route more than a few times in 40 years of HML ing.. and as Don states it can be just crazy what happens what the debtor will do what the BK trustee will do what the judge will do.. that all said if your position in the note is discounted enough probably still worth it. but in my mind to pay 90% and if there is not SIGNIFICANT upside I personally would not do it unless you have a repositioning play or something that no one else sees. 

Quote from @Jonathan Bock: Most landlords are reckless and they would do some probing for fun and to save $. 

Quick cash on a flip is going to 1. give you more cash to play with vs HELOC interest rates 2. give you an opportunity to 1031 exchange into your next investment.