You would definitely have to consult a 1031 exchange specialist, but my gut tells me that you should be able to as long as the following criteria are still met:1) You never touch the proceeds and the money paid to vendors comes from the qualified intermediary2) The purchase price of the MFH is more than the asset being sold3) The loan on the MFH is more than the existing debt on the asset being sold

If your current insurance agent (who is recommending the commercial policy) specializes in personal lines/residential policies, I would recommend talking to a commercial specialist and I'm happy to help further if you want to DM me.Without knowing too many other details about this, in general, anything mixed use should either have individual policies for each unit OR a commercial package policy that can be customized to your specific usage percentages.

I wouldn't recommend doing this sort of work yourself or at least consult a foundation specialist.

The reality in commercial financing is that most banks want a shared risked arrangement (they want some of your skin in the game).

If a person isn’t willing to put some skin in the game, why should the lender risk their cash?  

All such Lenders want you to have "skin in the game".

If there is no 'skin in the game' what stops you from pulling out when the deal hits a bad patch?

So in paying them off, there's really not a lot of skin left in the game other than raising the rents.  

More than one way to skin a cat.

I would say the key to investing out of state is making sure they have in house property management - keeping skin in the game.