I've only evicted a tenant through the court system three times in the last ten years, but I remove about a dozen tenants every year outside of the court system, all legally.Any tenant can move out in two weeks.

Take the proceeds and invest in a highly trusted Syndication or fund and enjoy the passive income.

Are there any potential risks or downsides I should keep in mind before proceeding?

Only downside is that you can never 1031 the 721 proceeds again.

Most of the one bedrooms that I have seen in the area seem to be going for 800-950 so I don't think I would have much of a problem, but I definitely want to be well informed before proceeding with this.

You did purchase the property in one tax year and are selling it in another tax year which satisfies one of the court rulings. 

Also, for anyone who considered it but chose not to proceed, what made you decide against it?

The court considers "open and notorious" to be in your favor as opposed to being sneaky and deceptive. 

His reason was the only thing he knew to do with the proceeds was to loan it back out at 12%, and he would be "behind" where he is now in cashflow.His proceeds would have given him options up to and including PE, but he is a simple man and in his case holding was the option for now. 

She's not going to have any leg to stand on in court if you get that far unless there's some explicit language prohibiting the owner from assigning responsibilities to another legally authorized party, and I'm guessing there isn't if another PM company was maintaining the lease and provisions - and the fact that the tenant was voluntarily working with the other PM confirms the acceptance of an authorized agent even if it's not explicitly stated, the same way if you accept rent from a tenant after a lease expires you imply acceptance of the lease terms continuing (which is why you should always have a holdover provision).