1031 Improvement Exchange, taking 200% rule into account

[Lauren C.]

Hey everyone,

I am considering my first 1031 exchange. PP was 900K, value now 1.5M. After everything is paid related to the sale, including mortgage pay-off, I think I have about 700K to spend. Both the relinquished and replacement properties are STR.

I'm looking at markets with purchase prices that are substantially lower than the one in which I am selling. I cannot purchase three properties without significant cash remaining. If I buy more than 3  properties, at 20% down, considering the 200% rule, it seems that I need to have 3M in value. It appears that there could be some $ left over. 

Question: Regarding the 200% rule, does that mean that the purchase price total of say, 4 properties, must equal no more than 3M, and I could employ an improvement exchange to make sure there's no remaining funds? Or, does the 3M include the funds for purchase+renovation and I'll be left with taxable $?

I refuse to "over-pay" for STR properties just because I want to avoid a taxable event, and I'm trying to scale my business without purchasing at the top of the market.

Thanks!