Money is unbelievably cheap right now. That equity is doing nothing for you right now so I would definitely suggest you pull some of it out and get it working for you.
Assuming your numbers are correct and discounting the 200k less you think it actually would appraise out, it would be worth 800k (roughly). You should be able to refi it for 560k and pay off your existing note plus leave yourself with 360k to play with.
Not sure what the best options in Texas are so I can't really help you there. But no matter what you did, it would have to have better cash on cash returns than what you'd pay in interest on the loan (5% maybe??) if you put it all back into real estate.
If you used that as your down payment, you could buy a million dollar complex there in dallas. Assuming a 10% cap rate, you'd be looking at 100k NOI, plus another mortgage payment on the new property of $4,600 mo, leaving you with a net of $5,400 a month.
And now you'll have to complexes that will continue paying down mortgages and continuing to appreciate.
Here's what you have today:
NOI minus mortg payment (2k): 4k per month
Principal Paydown: 18k/yr
Appreciation (assumes 2%): 20k/yr
Here's what you could have if you pull out 360k in equity and can get a 10cap complex worth 1mil with 30% down (300k).
Value: 2 mil
BLD 1: NOI minus 2 mortg payments (2k + 2,300 equity loan): 2,500
BLD 1: Principal Paydown (2 mortgs): 18k/yr + 10k/yr = 28k/yr
BLD 1 Appreciation: 20k/yr
BLD 2: NOI (100k) minus mortg payment on 700k loan (4,600) : 5,400.
BLD2: Principal Paydown: 20k/yr
BLD2: Appreciation: 20k/yr
TOTAL Monthly income (both properties): 8k/mo
Total principal paydown: 48k/yr
Total Appreciation: 40k/yr
Again, I'm not sure if 1mil complexes in texas can be had at 10cap. But I have to believe that you're getting to get far more in return on your money than the 5% you'd be able to pull it out for.
If you could find a 10 cap in that price range, you would double your monthly income in your pocket. Double your appreciation and more than double your principal paydown every year.
I would definitely get that equity out of there.......