If I compare the rental income to the PITI payment it's actually just positive, but with other expenses (water/sewer/trash and capex, calculated by using 8% of rents), it turns into ~$500 month coming out of my pocket.

The potential rent on th eproperty is too low to generate positive cash flow.

You are in a really good position with that amount of cash. 

I just started to cash flow positive last year after all my mortgages were paid off, but I have made multiple millions in appreciation.

You could refinance out of the 203k and take cash out assuming the equity position is there at the end.  

Therefore, I believe I should be in a position to leverage up my balance sheet, grow my real estate portfolio and generate more passive income.

They make a little over 3x rent, have a small dog, and had positive reviews from prior landlords.

(Tech works earning 6 figures+ or is it more of blue collar type)What does living in San Tan or comparable areas feel like (Eg: Does it have good hospitals, parks, schools, well maintained roads etc?

This goes back to how well you maintain your property, how desirable it is, how well managed, is it competitive in price and do you keep on top of management especially vacancies?

The LLC must also be maintained so it cannot be pierced.