If you’re interested in investing in real estate, you can consider doing so with a Self-Directed IRA to defer taxes on capital gains until you actually withdraw the funds from your IRA.

Ensure you collect a proper security deposit (typically one month's rent in Florida) to cover potential damages.Your plan to increase rent next year makes sense given rising costs (taxes, insurance, and maintenance).

If you aren't familiar with Baltimore, I would suggest it's a hard no and say that you are trying too hard to make cash flow happen talking Baltimore and tax liens and auctions.

How do we minimize taxes on the profit we're making on this first home? 

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.While the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall loss.

No management costs as it would be self managed, and estimated property taxes by the average of the past few years.

What is the interest rate on borrowing compared to the rate you are earning, then take into consideration the tax consequences. 

However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc...

I recommend that you find a trusted or recommended Mortgage Loan Originator (MLO), who can give you options for property-based loans (mostly investment loans) and they don't use your taxes but the P&L of the property.

I would be beneficial to determine if they are other aspects of the property that make it a worthwhile investment (tax, appreciation etc).