That strategy will make your partner a disqualified person(partner) so you most likely would be committing  a prohibited transaction by buying him out. 

Found it hard to find deals with demand so way ahead of supply, but then to be fair I didn’t really commit to investing in finding deals. 

I would like to obtain the remaining proceeds of about 248K but am now getting the impression that by committing all the proceeds to the 1031 as I did, that somehow appears that we are looking at a full taxable payment of 395K if we do not make a purchase of that amount...or at least to the $353K amount. 

Congratulations on your commitment to give back.

@Anna Watkins- I like the idea of a soft application with them commiting then after that.

Maybe it's still worth it, but you need to know that before you commit to anything.

It takes work, commitment, and typically at least some liquidity to get started in larger MF deals. 

Next, if the tenant gets their own appliances, then perhaps they are more committed to the property.  

In my opinion they committed fraud.

Option B: In addition to 1-3 resident artists that rent the space monthly, also allow day-renters that can rent the studio for a higher premium but less commitment.