I diversify my rentals between the "Short short" (30 days or less) business model and "long short/corporate rental" (30 days or more) business model so I don't like to take all my bookings through Airbnb & VRBO.

But the short answer is there likely is a way to meet you objectives while completing a 1031 exchange which also preserves your option in the future to continue to exchange real estate.  

I have discussed my plan, short and long term goals with my PARTNER in regards with this property.

If your time is more valuable because of existing family, lifestyle or work requirements, passive investing is the right choice.Similarly, if you want to maximize short-term cash flow from a 'disposable' house (one that you will sell to another investor at or below the same price you paid), look for those types of houses, neighborhoods or markets. 

Is it possible to obtain a policy that will rachet down once we complete the work, or provide a short term exemption if we escrow the funds to replace the panels immediately?

I would make sure the escrow is large enough to cover any conceivable repair bill otherwise if the escrow is short your seller will go dark.

Cash out is good option if you are going to use money for longer term if you  need money for short term purpose definatley go for LOC.

(though short-term you'd be better off finding a different approach)

Initially I only paid 10%.. but next day I paid full amount, got receipt from sheriff and some paper with stamp on it that says record of sale/interest....To me it seems like this is all clear even at this point deed has not been recorded, I told bank that I paid all the money to sheriff and they'll send the money to bank shortly...Is this all clear now for me to take possession ?

I 100% rehab my homes, new HVAC etc, then rent for at least year before a allow the tenant to buy via a CFD with amortizing term 10-14 yrs, short as possible.