Seek qualified legal guidance

The fact that you think the tenant is a pain has nothing to do with how you maintain the property, you could be creating legal and maintenance problems for yourself by not taking action. 

As long as we would be legally allowed to proceed with this plan, then the question remains, as you point out, what is the tax burden for the partial 1031 exchange.

I would NEVER Ever use OBIE INSURANCE  --Not honest in their dealings and do not expect refunds on cancellations  I am of the opinion that they are legal scammers Just be careful

What I'm not sure about is STR restrictions in this area but that's easy enough to find out.

All these statutes supercede any written contract between landlord and tenant.Now, if they stop paying, then you do not have the restrictions above. 

I love how Airbnb just pay me based on the evidence without going through 6 months legal battle or 3 years of collection hunting. 

If it was me...I'd check with zoning to find out how many dwelling units I could build, and I'd find what the requirements are for those units (type of house, height and setback restrictions, etc.).Then I'd find out what local builders think the cost to construct would be - just get a cost estimate per square foot for 2 or 3 different levels of finish.

The nuances in state regulations require an expert who understands how to expedite the process within the legal framework.

I'm reaching out to Baselane's leadership to put some sense in them about good banking practices and honoring legally bound leases, that they ended by breaking through this action.