These markets are attractive because of their diverse, resilient economies, lower priced homes, and stable home price appreciation.

Basically, there's no free lunch when it comes to taxes.Depreciating property lowers your tax basis.

Would the IRS allow them to benefit from a 1031 Exchange if they would be "swapping" a million-dollar rental for one that is much lower in price?

Deviations from the Private Letter Rulings will significantly increase your risk of structuring this type of advanced 1031 exchange.You should discuss this more advanced 1031 Exchange structure in greater detail with your legal, tax and financial advisors to determine your comfort level with this complicated 1031 Exchange structure and the inherent risks involved.

I invest primarily in a lower cost area but also own property in, and am looking in, a higher cost area.

I would negotiate a price point that is lower - maybe the 10-12% range above "market".

@Scott Stampsi don't know anything about it but i am just curious:what your experience level iswhat you're hoping to accomplish

Markets like Texas (San Antonio or Dallas) or North Carolina (Charlotte) could offer better cash flow with lower costs.

The only approach I’ve found effective is offering a deposit alternative, which lowers upfront costs for tenants without devaluing your property.

In a market like this where properties are sitting a bit longer, buyer demand is kind of stagnant, many appraisals have been coming in lower than anticipated.