Townhome owned Self Directed 401k -- what next?

[Erik Kubec]

Hey folks,

In 2012, I bought a 2 bed 1 bath townhome in the Denver metro area for $35,000 through a self directed IRA that initially had about $50k. Had the property appraised last month for about $120k. It rents out for $950 / month. Been incredibly lucky with the tenant--a genuine germaphobe/neat freak who has required zero maintenance in 4.5 years, and always pays on time. Folks that know the Colorado market can probably see the market conditions that led to over 300% appreciation in under 5 years:

• Difficulty in getting financing for condos during the aftermath of housing bubble bursting, thus, this depressed demand.  At the same time, there was a lot of inventory.  Hence, the low acquisition price.
• Construction defects law:  Hardly any condos have been built for some years now because of the problems with foundations and shifting soils meant builders were liable for bad engineering.  Thus, no new supply of condos as the general RE market has come back.

So here I am today.  The total value of the Solo 401k (i converted the solo ira to a solo 401k a couple of years ago) is now close to $170k ($120k in RE and $50k in cash).  The 'best case' cash flow on it is about 550 / month, after all fees.  Note, this means zero maintenance and vacancy.  Which has been the reality for the past 4 years, but you know what they say--this is not a guarantee of future returns.  

With the boom in apartment construction that is happening now, it seems that both price and rent appreciation have a limited upside:

• With all of the apartment supply coming on line, how much more upside is there maximum rent?   Probably more downside, or at least limited upside.
• With all of the potential for these apartments to be converted to condos and sold--after the 6 year statute of limitations on construction defects--how much more upside is there to appreciation (considering there is already +300% 'on paper')?  Probably more downside in the future from a supply perspective
• Some year perhaps the Colorado State legislature will figure out a way to deal with the construction defects problem.  More downside to the supply story

Here are my options:

1. Do nothing--continue to collect the rent.  This is a retirement account, so my timeline is 20 years (I am 47 now).  It will grow, but there is a lot of dead equity. 
2.  Sell the townhome now or soon and either
   1. Move the cash into something else non-RE, position myself for price-time arbitrage in RE:  since there are no cap gains taxes in a solo 401k, this means I could sell, not pay taxes, and wait for a shift in the RE market to buy again.  
   2. Explore non-recourse lending. Use the $170k + a non recourse loan to acquire enough capital to buy a SFR. Goal would be to double free cash flow
   3. Use the $170k and then add in via 401k contributions enough to acquire a SFR, goal would be to double free cash flow.

Thoughts?