1031 Exchange, whether or not to Carry the note, how it works?

[Matthew Maggy]

I've got a situation and I could really use some advice and input (it's time sensitive and I'm waiting to hear back from my accountant and 1031 Exchange agent).

I'm selling my out of state condo for $70k, I paid $26k in 2010. I want to employ a BRRR strategy locally in Richmond with the proceeds. And I will be doing a 1031 Exchange.

A wrinkle came up where I could carry the note for half down at 7%, which would give me $35k to play with and $203/month cash flow (which is what I want from a property anyway). 

A) I'm trying to figure out how this jives with a 1031 Exchange. Do I just Exchange the amount above the note? Which part gets taxed first against the basis? 

B) I have less money to play with for BRRR (which means not as nice of a property). Am I killing my velocity of money? It would be nice to have the cash flow to pay for property related expenses while fixing it up.

C) I could also sell the note if I wanted (but this would incur the capital gains, correct? Minus the 1031 Exchange protection?)

D) Any other aspects that I'm missing and should consider?

 I have 24 hours to make this decision. Ha.