Selling to a partner and 1031 exchange

[Jason Bajaj]

We have an interesting (complicated?) partnership structure so wanted to get some opinions from the biggerpockets experts!

Partnership structure: 4 partners - 2 American, 2 Canadian
Property: SFR in Michigan, bought and rehabbed last year, currently rented out, deed has the names of the 2 Canadian partners
Goal: cash out refinance current property, buy/rehab/rent property #2

The Canadians are not eligible for a mortgage so it needs to be somehow transferred to the US partners. 

Idea: The current joint owners (2 Canadians) sell the house to the American partners. The buyers will get a mortgage on this house and continue to rent it out. The sellers (Canadians) will do a 1031 exchange to get another property and defer taxes. Not sure if it matters but the cap gains on the current property are likely around 20-30k.

The idea is definitely not fleshed out and mostly just me thinking out loud. I would love to hear some opinions both on this approach and any other alternative options (something we've thought about - Canadians quitclaim to Americans but the lawyers had mixed opinions on this approach due to confusing tax implications).

Thanks, appreciate any insight!