This is not a great return, but not terrible.As others noted, there are other risks, like having the property insured at full replacement or purchase price, or if the option is 100% seller financing with no money down or very little, versus 20% traditional down payment, this can start to move it into a better investment.

Here are a couple of ways you could structure the deal:Lease Option with Seller Financing: You could lease the property with an option to buy later, allowing you to rehab it while giving the sellers time to find a 1031 replacement property.Seller Financing with Deferred Payment: Structure the seller financing with no immediate payments, allowing you to refinance once the property is appraised, and the sellers can complete the 1031 exchange when ready.Escrow Holdback: Transfer the deed into an escrow account, giving you control without immediate transfer, so the sellers can take their time with the 1031.Third-Party Facilitation: Use a qualified intermediary to hold funds and facilitate the 1031 exchange while you refinance.These options allow flexibility for both you and the sellers.

I’m not looking to retire early or replace my income through rentals—I just want to diversify our assets.

Reinvest profits, stay patient, and keep building toward replacing your income.

I've since had to do a service call for the fridge and had to replace the oven recently as the repair was going to be about as much as a newish used one that was in great shape. 

., identifying a replacement property within 45 days and closing within 180 days).

Really nothing can replace real life connections! 

It may not be so easy to just replace the company you have.

What gets expensive is replacing a deteriorated side sewer from the house to the street, when they use the cleanouts and find out what's going on down there. 

The modest cash flow could be reinvested, eventually allowing me to build a portfolio of income-generating properties.I recognize your point about needing $2.5M–$3M in cash to consistently replace a six-figure income.