So all of the gain and depreciation recapture are initially still tax deferred.However, like Joe said, the down side is later when sold  you lose the 1031 option. the client will pay tax on all gain and depreciation recaptured from before the 1031 also. 

How do you become a broker for hard money lending? 

Plus the mortgage company probably calls the loan, and if you can't pay it off then you can lose the property.

In a really good market, an investor can achieve 1% of the money invested.

Your income isn't high enough for it to make sense as a rental and the closer you get to your residence limit the greater pressure you will have to sell it before losing your exclusion in whole or part. 500k right now can make $15k per year income with zero maintenance or tenant risks. 

Meanwhile, bank money market paying 7.5%. 

I've never heard money/profit described as cute, so it's not important.The most important thing you mentioned, was the rent potential and ARV. 

Stay in and be part of this 721 or lose my investment most likely.

Convince yourself that there's a better than average chance that you will lose, and if you can live with the time, energy and money spent if you do. 

If it's just a money grab and there is no desire to associate with the aforementioned, you will most likely be on the losing end and feel very negative about the program.