You have areas where property taxes are going up too fast based on the over valuation of properties  ( tax on unrealized gain ) .

The overall gain on the sale of the original property was over $500K, and I received $500K in cash.

Having been in the lending space for a while now,  Interest income is not passive - its considered/taxed as ordinary income- just like interest you receive from your bank and savings account.Regarding profit and expenses from a flip, "that depends" on many factors but again if its short term capital gains, its not tax friendly.As always consult with your tax advisor / CPA. 

Even the modest 4% annual appreciation equals wealth gains far above any monthly cash I can make on a rental.

You will have earned $90,000 in rent income and gained $34,000 in appreciation after five years.or...Buy four houses with $50,000 down on each.

Short term capital gains for our bracket would be 20%.

Everyday that the property is vacant you lose money that can never be gained back.

Lastly, if the home has appreciated at all, taking advantage of Section 121 and taking capital gain exclusions is just another strong point towards selling within the 5 years if you've lived there for at least 2 years. 

This is a fantastic place to gain some insight into the REI world, particularly for those starting out. 

This gives you more flexibility while building equity and gaining experience.Risk Spread: More units mean a lower risk of vacancy impacting your overall revenue.