As long as you've been living in your property as your primary for 2 years, then you won't be liable for any capital gains tax up to 500K (or half of that if unmarried).  

Managing this rental so far has been easy and it rents fast.Now the SE PDX market seems to be growing at a slower rate than it was couple of years ago and if we don't sell before next year April, I would have to pay capital gain taxes.So my question is - Should I sell this house now and avoid paying capital gain taxes and re-invest the proceeds back when the market hits a downturn or hold on it this house for the long term?

I also attended a TREIA workshop on legal issues for landlords and had a real estate attorney review my application and policies, and I do move-in inspections with new tenants so everything is transparent and covered up front. 

In equation form, if: potential return x probability of gain >> cost of investment.For example, a deal that costs 10K that is associated with a 50% change to earn $100k is a great investment!

I contacted an attorney and he will do it for a $1,000 retainer as well as $250 per hour for the legal work involved.

I encourage you to ignore the naysayers like @Josh Stack said and drive forward understanding that yes, while you are taking a risk, it is a calculated risk and one based off knowledge you've gained via someone who is actively and successfully doing this type of investing. 

I'm selling my home and doing a 1031 exchange, and am filing a California Form 593-E (Real Estate Withholding -- Computation of Gain or Loss).

It took an additional 4 months to close and the seller ended up spending $25,000 in legal fees to clear the title.I'd get the advice of a real estate attorney. 

Keep in mind tax aspect may be different from a legal one, so you may want to consult with both: an attorney and a tax accountant.Disclaimer: I am neither tax or legal professional so this is based solely on my experience.If you would like more details about my personal experience feel free to PM me.Best!

If the property is truly worth $36.5k, just sell it, pay off the high interest loan, pay Uncle Sam short term cap gains, and you may even have some cash left over which would be a huge win.