At a 7% annual return, this could grow to $908K after 10 years, providing immediate liquidity and diversification.Alternatively, holding the property could yield $825K net equity after taxes in 10 years, assuming a $900K sale, with the potential to defer taxes via a 1031 exchange if reinvested into another property.

The two are almost entirely different markets in terms of price points, returns, tenant quality, and overall investing strategy.

I've owned the house for few years and have spent a lot of time trying to design an addition to add value to the property, but the current floor plan is really not conducive to realizing a return on that investment (tiny living room, low ceiling basement, poorly placed basement stairs, etc.). 

Done right 2%/month return on asset value is possible. 

It can easily take 6+ months to find a motivated seller. - Just be prepared, because a motivated seller typically has a property with issues you need to be sure you can solve.

You could get into a solid multi-unit or a single-family rental with real cash flow instead of hoping your Katy rental eventually fills.Not saying you should walk just yet, but if leasing drags out longer than expected, would you consider selling and reinvesting somewhere with better returns?

I always recommend to make even a little passive income from a rental after all your expenses, lets be honest you put a lot of effort into this rehab so you should reap a little return.

Any issues that occur with the property can easily be solved with the property manager working nearby. 

While the 4% mortgage is great, your 1M in dead equity isn't giving you a great return.

No personal income or tax returns are required.