Is there such a thing as too expensive a house to make a rental?

[Michael H.]

I appreciate any and all opinions and insights into my situation.

I currently own a townhome free and clear. Technically the townhome is classified a condominium, so I'm unable to do anything with it financially other than sell it or keep collecting the cash flow.

I have an idea to 1031 exchange into a property that eventually I can live in for a few years and avoid all the capital gains taxes. But in the meantime, I'm a little concerned that doing the 1031 into a more expensive property will put me in the very narrow end of the rental market because I will be renting this out for the foreseeable future. 

I'll give some number examples. Current worth of the townhome $300k, looking to 1031 into a $450k-$500k. Current rent for townhome is $1800, expected rent for the new home would be $2700-$3000. I could even go into a more expensive property with higher rent, but concerned about the number of people that are looking for a $3000 monthly rent. The median home price for my area according to Zillow is $378k. So at $500k, I'm not at the very top of the home prices. I've looked at the highest rents in my area on Zillow, and most of them have been listed for several weeks.

I considered trying to market it as a corporate rental, however, I don't really want to have a furnish a huge house. I also don't really know anything about that part of the rental market.

So my question boils down to, how do you know when you're buying too expensive of a house to try and rent reliably?