It seems like many folks get unnerved about the potential adverse tax effect of a real property sale because they only consider the transaction in isolation rather than taking into account their total situation (carryover capital/passive losses). 

How would we scale this or potentially 1031 exchange into a larger deal (commercial)?

Seller finance and reverse contingency are some potential options but both are tough to get in today's market, although not impossible.

What often gets overlooked that hurts new investors?

While it doesn't "hurt you", I just recommend it in general, for the greater good.

Potential for increase in rents and appreciation upto 3.5 to 4million in 5-6 years but not sure.Rents at 210k per year for 4 tenants. 50k per year total paid for common area maintenance by all the tenants - which includes property management fees, property tax, insurance, snow removal, other maintenance and misc stuff. 

Is this a potential problem or is this easily corrected?

This sounds like potentially a very good plan

When you purchase, make sure rents in the area will be a potential cashflow for you in the future.

Your only worry remained getting the correct rate of interest to pitch to a potential investor.You wrote on your profile that you're an insurance agent.