I’m still in the capital gains exempt territory but only until the end of the year.

A little uncharted territory for me.  

I don't mind seeing the stains of hydro-static pressure puddling, but as soon as one gets into mold territory and then says "is it legal" for a bank to call time out, I have to question how accurately you are portraying the situation.

We are still in extreme seller’s market territory with 1.2 months of inventory.

I am mainly thinking about replacing it with STR but my main hesitation is KNOWN vs UNKNOWN territory.

From the sounds of it, this is new territory for you- a realtor will guide you, negotiate with the seller, work with a title company to make sure your deed has no clouding and ensure fee simple ownership.

Should the balk back you can always go down a bit but I think this is very normal territory. 

I thought I had seen it all until now. People scrambling in desperation to buy a home. Any "home" here on the Central Coast near San Jose and Silicon Valley. Even if it is a mobile home in a leased park, it is going o...

With the 1031 you can buy any type of investment real estate any where in the US (and even a couple of territories). 

Personally I've done my deals under an LLC, so I haven't even ventured into the personal loan territory, but I'm sure other seasoned investors can steer you correctly with that matter.