If the true market value is $320K, and you sell it (assuming 8% closing costs), you would cash out 296K. But need to subtract $136K and $21K for the mortgages and you walk away with nearly $140K in cash. That is not bad.
For rental, since you bought at $185K and get $1800 gross rents, this nearly meets the 1% rule, so it is definitely worth CONSIDERING as a rental. But you really need to run all the numbers. Since you did NOT include vacancy, property management, or capex/maintenance, this property is only going to cash flow a couple hundred a month over the long term. And, it sounds like a good chance HVAC going out could kill several years worth of cash flow. Compare that with $140K tax free in the pocket, I would take the cash.
If you want a rental, then seek out a property specifically as a rental--you could leverage some of the $140K to buy it.