Sell and 1031 or REFI and buy?

[Ray S.]

I bought a property a couple years ago, rehabbed it, and rented it for a few years. I don't have a mortgage on it, the property has appreciated about 30%, and the current cap rate based on the current market value of the property is around 5%. A couple bad points about the house is that it's in a flood zone, so the insurance is very high and I fear it could continue to rise. I also was hoping to get a property with a higher cap rate, or that allows short term rentals.

The question is, should I sell this property and 1031 exchange it to 1 or more better performing properties? Or should I keep it, pull 75% out with a mortgage and use that to buy another property? If I got a mortgage, the current rent would only just cover the mortgage, so there would be no cashflow on this property and I would just be banking on the money paying down the mortgage and the chance of appreciation and/or rent rising. 

Thoughts?