So there might not be enough gain to need a 1031 exchange.If there is enough gain to justify the 1031 exchange then simply treat your replacement property as you would any other investment like @Daniel Osman said. 

Properties like the Michigan complex offer a unique entry point, combining cash flow and significant upside potential.Immediate Cash FlowThis particular property is projected to deliver 6% annual cash flow from day one, already exceeding the yield of Treasuries.Value-Add RenovationsThe property includes hundreds of units that can be upgraded to Class A finishes, justifying rent increases.

They will investigate and see if any rules were violated.

@Omar PietersA few things here.The 1% rule is thankfully not a rule otherwise most real estate investments in the US and many other parts of the world wouldn't work.

If it has any basis at all (such as you left the apartment during your lease term for what you felt was a justifiable reason and stopped paying rent, but the landlord disagreed) then you may be better off paying a rather small settlement.  

I just couldn't justify the cost of the program right now.

I don't think I could justify custom cabinets for a $1500 rental. 

The only way to justify the work is by having meat on the bone.  

If you go into A/B Class the rents are going to be too high to justify doing section 8, meaning market rents are higher than Section 8 is able to pay.If you go down to D Class areas you're going to attract terrible tenants and it will be a nightmare. 

I'm looking for something that meets the 1% rule in a B or A class neighborhood."