To clarify, only the LISTING agent is obligated to present offers to the Seller, and CAN withhold offers that the Seller has instructed them to exclude. 

If you sell a property for $300,000 or less and the purchaser (or a member of their family) is an owner-occupant (meaning they plan to live in the property for at least half the year, for the first 2 years after purchase), then no money needs to be withheld.In consideration of this, it might be wise to focus on SFRs with ARVs no more than $300k.Keep in mind that you are still required to pay proper taxes from your real estate deals for each year, but you just wouldn't have to worry about the IRS withholding the money from you ahead of time.

Plus, you have a third-party opinion to help justify any security deposit withholdings. 

Now I'm concerned with holding costs blowing out the budget if it takes a month or two to sell.

California has a Franchise Tax withholding requirement. 

You can withhold whatever portion you want from a 1031 as long as you are willing to pay the tax on that amount.  

Your payment structure should withhold earned fees weekly to pay workers.

I just withhold the taxes to make sure they get paid.

it would be tough to go into the winter with holding costs when that may have ultimately yielded the best net.

Without some sort of proof that the tenant caused this (which is something basically impossible to prove), no way can you get away with with-holding SD money for a SUBFLOOR.