Use your best discretion to decide which method is appropriate.I would approach this from the fair treatment that both tenants deserve. 

You'll pay tax on the amount of cash you pull out but you'll defer any remaining profit in the 1031 exchange.Another alternate approach would be to do a complete 1031 exchange into an investment property (or more than one) and then cash out refinance and use that cash to reimburse yourself for the expenses and let the tenants pay the mortgage.Or yet another option related to that. 

That looks like a great alternative to replacing the counters. 

I decided to start an alternative route to pay for the down payment on my first rental property, and hopefully many more to come. 

Or alternatively, if anyone has been based in NJ and invested elsewhere. 

Any suggestions for alternative funding?

The alternative is you raise funds a deal at a time after you have a deal under contract.A fund requires a different filing and there are different (higher) costs.I am not saying you should pick one or the other.

John,Be sure to check with the Non-FEMA alternatives for the Flood Insurance.

Also if the report is clean or has liens that survive foreclosure an alternative is a deed in lieu.

Awesome thanks guys @David_Edwards, I was thinking the same thing as an alternative to retail regarding the ADU.