Refinance or sell? Advice please.

[Chandra Yates]

In January 2013, we purchased a SFH in SW MI for $145,000 w/ $21,750 down (LTV 85%), APR 4.375%. The house has been rented continuously since closing with rent at $1250. Our monthly cash flow has been $180.

We received our annual escrow analysis last month.  The non-homestead taxes have caught up to us.  The annual taxes have gone from $2190/yr to $3583, thus pushing our mortgage payment alone to $1300+/mo thus erasing all cash flow. Our tenant signed a new one year lease just days prior to receiving this news.

If we sold, comps show we could expect a sell price between $150k-$160k. We would not regain our down payment according to our calculations. Thus we have decided to refinance. The bank will only refinance to 75% LTV not the balance of the existing mortgage due to it being an investment property.

The new numbers look like this:

Loan amount $112,500, APR 4.25%, closing costs $12,145. New cash flow will be $187/mo. The total amount invested will go to $33,895, however, equity will increase.

It has been our plan to hold the property as a rental.  It is a solid house w/ no need for major maintenance (roof/windows, etc.) anytime within the next 5 years. 

Thoughts?