Putting it as a long term rental will not give me any cashflow, I can probably rent it out for $1500 max and my mortgage payment is around $2381/month. 

Most lenders are fine with just seeing a signed lease and receipt of the first month's rent with security deposit, so the tenant doesn't need to actually be moved in yet. or 80% though it will certainly make the process smoother if you have a tenant lined up.

If you think this property will continue to appreciate and the rents will continue to grow, then I'd suggest the cash out refi.

I am considering renting to someone who1.

Over the year, I fixed some items up and raised rents as 3 out of 4 units were under market.

It has a main house and a back house that is currently being rented.

I know condos might not be the best investment, but I'd rather own something in the city than keep paying rising rent. 

Unless this is a high end rental some slight difference in cabinet doors is probably going to be a non-issue on re-renting. what is amazing to me is you don't have broken tiles with a tile countertop.

We're pretty conservative with our numbers, so we set vacancy at 1 month rent lost every 12 months, or 8.33% of gross rents.

However, I do think if you can hold out for 1-3 years you might see rates drop a bit and insurance drop a bit, and I feel pretty confident we'll start seeing 3%+ organic rent growth per year in the next 2-4 years again.