I can help you out as I know the area very well, but need a bit more specific info and a narrower geographic location. 

Looking for some advice on how 1031 will view rehab costs/ ARV on something like this? 

Located here in Austin as well.

I checked into an FHA OTC loan but it had mortgage interest rate over 8% and lifetime PMI payment which I would like to avoid.

This is like asking does anyone have anything cool to say about pizza. 

Though I never put my ear to the ground as regards STR's, I plan to , and if I come up with any useful ideas for you, I'll pass them along.

The truth is, if the owner did increase the rents and was operating the property to market conditions, and at the most optimal level, they likely wouldn't be selling the property.

Happy tenants are more likely to renew leases, reducing turnover costs and vacancies.Legal Compliance: Property managers ensure compliance with local, state, and federal laws, including regulations on rent control, fair housing, tenant rights, and eviction procedures.

As long as you meet your reinvestment requirements it doesn't matter how you allocate the proceeds.Now (now not needed) In your case if you"re selling for $800k (after closing costs and commissions) and maybe you decide you would like to purchase two properties for $400k.

Landlord pays water/trash. 3 units well under market (long term tenants over 7 years) market rents would allow for $6000 month ($750 per unit) There is no laundry at property.Turn key investment