Rock that for about 12 months and add some equity and then you could refi out to conventional so as you pay it down in the future the mortgage insurance will drop off.

I choose NOT to accept your future. 

It also has enough sq. ft. to accommodate the additional unit without having to consider it an efficiency unit.But also agree, we'll just start simple with adding more living space / the duplex down, and keep things flexible for the future.  

Although whichever option you go with make sure you're also thinking about the long-term property value and what makes the most sense vs trying different angles now that negatively impact future resale/property values down the line. 

I would like to buy a future retirement home to get away from the cold winters but in the meantime would love to rent it out as a vacation rental.What are the good areas to consider and where would I get the most vacation renters and cash flow?

You’re in a win win situation no matter what however I guess you would also want to take in account any major cap x repairs that might be coming up soon in the future you might want to avoid paying. 

Here’s a thought:Step back and evaluate which properties, if any, are truly worth keeping based on current performance and future potential.

The third property has a nice cash flow.I am wondering if there are steps I can take to reduce the cashflow issues of the 2 properties before obtaining another property, like pay down the mortgages or should I just save the cashflow from the third property to pay for any future expenses?

The way we used it was when a borrower was in default, and say was expecting to be able to pay in the near future.  

If you opened the exchange with the intent to hold the property for investment, and then in the future circumstance changed which caused you to reconsider the use of the replacement property and convert it to personal use, then a period of time less than two years might be reasonable.