If you are taking the money as a distribution it should show up on your income tax returns. 

Depending on your investment threshold, calculate a high single digit or double digit Cash on Cash return.

However @Richard Balsam is correct about insurance and everything, getting the rent that is due is a great return, getting them to pay for everything else might be possible but will make everything much harder.

We turned our first home into a rental and the property has around 200k in equity and the return is 9%. 

If so it might be worth trying to find an equity partner who would be OK with a preferred equity return on their down payment. 

Your calculations look pretty good, if you are comfortable with the return you should be alright

If I treat the 401k money as if it were cash, that is a 16% return.

A 30-50% cash return is pretty attractive to some people.

I am a relatively new investor who purchased my first 3 deals (SFR's) here in Lufkin, Texas with excellent cash on cash returns thus far.  

But deep down I am a downtown girl and also really like Midtown too!