I have always thought that the closing process was unecessarily inconvenient and manual.

One other adjustment I would like to make that is currently on the lease is the lease says "owner pays water for both units" with me being a single and them being a family I feel it's fair for them to pay for their own water bill because they're naturally going to use a lot more water than me.

I have moved to using 15 year adjustable rate loans with a 75-80% LTV.

Regardless, the 1031 allows you to defer that tax as well, rolling the adjusted basis of this property into the basis of your replacement property. 

Or if they have done that they refuse to make the adjustments we suggest in relation to finding strategies etc. 

I run into this about once a month with clients.This is usually how it goes,I tell the client it will cost $20k for the property if it was updated, but $30k-$35k with those panels.Buyer goes back to the seller and states they need to renegotiate.Seller doesn't believe and says "talk to my insurance company as they are charging less than that"Buyer calls sellers insurance agent and the agent states "yeah, this is a grandfathered policy and we if have to issue a new policy for a new owner, it will be about $35k"Seller then either cancels deal or negotiates down.As @Matt Popilek states, if the seller has multiple options, it will be more challenging to get them to adjust down.Good luck with it.

If it is owner pays utilities you might want to adjust those numbers.I do not know what the property list price is (if it is even an on market deal) but a purchase price of $725k then $80k in repair, yet you stay at an ARV of $725k?

If utilities are included in the rent, then it would be reasonable to adjust the rent based on how many people will be occupying the unit.

Scenario 2- Continue renting for the next few years and save more money....hoping for a price adjustment in the market buy a 3 bedroom, live there, and still purchase rental property after 2 years keeping the 3 bedroom and either staying out or renting out that as well.  

But situations do occur whereby if the Austin market adjusts, his company may relocate him.