@Dick Stevens I purchased a 29 unit apartment community and the former owner had rent payments due throughout the month...crazy administration.  3rd party management spent the first couple of months getting all residents on the same due date.

Here are my two questions:1) Can we occupy it as residence but rent part of the house out to a relative so as to still have it qualify as a 1031?

Unless its a multifamily home with a single meter and common areas who ever resides in the home should be responsible for all utilities.

If he does that he will defer all tax.When you go to sell that property you will be selling your primary residence and your gain will be tax free. 

@Matt Said - is this your primary residence?

He resides 3 hours away, not in the property.

Then, when they enroll in the local schools, I had to sign an affidavit certifying they are tenants, on the lease, and furthermore I'm responsible for fines, and reimburse the town for money spent on educating an illegal resident.

Since this is your primary residence there are no taxes on the sale up to 250K I believe.

I'm from Laredo, Texas, but my family and I are currently living in South America and will be residing outside of the U.S. for the next 3+ years.

We were ok not cash flowing because we knew we were in an A class neighborhood and the profits would come from appreciation. 2.5 years after the acquisition, we sold the building and realized a 22% appreciation (definitely atypical results)In my opinion, if you're going to reside in the building, buy a 2-4plex in a neighborhood where you want to live and the appreciation will come.