Tricky question about a 1031 with immediate seller financing

[John Payne]

Scenario: 

John is an older investor looking to fund his passive cash flow while getting out of his real estate investments and Susie is a young energetic investor that is just getting started with all the knowledge she's getting from BP.

John Q. Public, property owner, is providing seller financing for a mutlifamily property (Property A) to Susie Q. Jones for a 10 year term, amortized over 30 years. Susie Q improves the property, reduces expenses, increases rent giving her the ability to cash-out refinance and still cash flow (hooray for Susie!). She's able to do this 1 year into the deal through hard work, and is successful with the Refi. John is now on the hook for taxes for his equity windfall from Susie. John and Susie have built a good relationship over the course of the year, and John is comfortable enough to continue to finance and partner with Susie. Susie thinks she has a great idea to help him out, but is unsure of the process. Ideally, she would like to take his windfall and use it for another property with the most tax-advantaged method possible for John. She wonders if she'd simply be able to take that cash windfall and apply it to another piece of real estate with him as the financier/partner and her name (or entity) on the deed. Or, with a 1031 exchange, she thinks he could buy a new property to defer the overall tax liability (following all the 1031 rules) and she immediately (within 3 months) could purchase the property from him on seller financing terms to continue to provide his cash flow while stretching (decrease) his tax liability over time.

Questions:

What are John's options to preserve his capital without the tax liability? 

Is he able to do a 1031 exchange to a new property with the windfall of capital? 

Can he employ this capital in a tax-advantaged way?

Commentary:

I'm trying to read up on the finer points of 1031 exchanges and creative financing options. I'm currently working on a seller financing deal to house hack (live in one unit) on a multifamily property while building a solid relationship with the current owner. This scenario is based on a possibility before we go finalize the contract. I'm trying to ensure that I have some flexibility on terms if I would like to refinance, but he wants to ensure he keeps a consistent cash flow to meet his needs.

Any input is greatly appreciated!

*All names in the fictional scenario are deliberately, and obviously, fictional to avoid any conflation with reality. Hope that covers any legal mumbo jumbo