Buying cashflow property in Los Angeles?

[Charlie Chavez]

Hello,

 I will be putting my property on the market soon and i was told to do a 1031 exchange to avoid taxes. The properties around my area near Los Angeles is at an all time high. My first thought was to cash out buy something small ( lose some money on taxes, no 1031) and hold the rest of the cash for when or if the market takes a little dip in the future so i can but multiple multi family properties. Next option would be to use all the capital from the sell on a muti family home with 3 to 4 units. 

I found a single family home that was recently rehabbed and made into a 5 unit multi family home, i was wondering if thats legal on their end or should i go to the housing and safety to ask? i wouldn't want to invest in this property not knowing if its  illegal to do.

My question is does anyone recommend my first option to lose some money on taxes and wait to see how the market does in the future, or take the 1031 exchange in a mutli family and put all the money into it. also is it smart to put a large down payment of 75% or more on a rental property investment?

while reading a few forums i see people recommending to go out of LA county or state would that be a better route for having  larger capital?