Yes, your assertion is correct - there is no better BUILT IN way to handle placeholders like yours in netlify dev. Maybe instead of modifying the file directly, you make a startup script like this:
sed s/PLACEHOLDER/${API_LOCATION}/g < input-toml > netlify.toml && netlify dev
?
But I’d also think that your API_LOCATION would stay pretty consistent in local test, and you could .gitignore the file for the most part to prevent your git client from uploading it when you push.