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@Ashvin Dewan, does the entire parcel of land need to be sold or can it be sub-divided so that you can sell a portion and take additional risk with a portion?

Also we are thinking to add additional floor space in the roof, if the structure allows for it. 

Don't get caught in the trap of not wanting to hurt your cash flow, when that equity could be better utilized to generate more cash flow in a safely leveraged additional investment with all the other associated benefits of owning more property(loan pay down, depreciation, chance for appreciation, etc.).

As well as I have a cosigner who would be willing to sign the note (although he doesn't make a lot he has an additional $2M worth of real estate).So here are my questions:1) I know there are some legal issues with trying to raise money from private individuals for real estate purposes and I don't want to do something that might end me up in trouble with the law.

Did you have any additional thoughts on the metrics of the deal, outside of the legalities of the 1031?

In addition to ensuring there are no legal issues clouding your ownership, that will also give you six additional months to clean up your credit score and also to establish some work history.

I suppose you have been reporting the rental income and expenses(including depreciation) on your tax return.If you get paid in Italian currency - it is your job to convert the amounts in USD when reporting it on your return.If you hold the property in an entity(partnership or corporation) you may have additional informational forms to file with the IRS.If you have a bank account in Italy with a value over $10,000 - you also have an additional informational forms to file with the IRS.You should have been entitled to a step-up in basis upon inheritance.

HELOCs are supposed to close within four to eight weeks but can take longer if underwriting requires additional information or documentation. 

You have equity in your primary residence, so refinancing could be an option to obtain the additional funds needed.