If this is the case, make sure you are not in violation of the leasing agreement, most include a non-sublease clause. 

The upstairs tenant is currently paying $700 month but electric and heat is currently included so I was figuring reducing his rent by $100 and having him take over his part of the utilities after the split. 

Follow the money.Option 3:  This is your best option...again, as long as you have positive CF, your tenant is making the payments...not you...and this includes both the principle and the interest.Option 4:  This may be the best option

Make sure that if you do find a property that it will cashflow with vacancy rates, maintance repairs, and potentail management fees included. 

But you're total gain including depreciation recapture was $60K so you would end up having to pay the tax on all $60K - no benefit to the 1031.The other question you're hinting at is what if you bought a tract of agricultural or hunting/fishing land that you intended to use for productive use (wilderness activities, rental, agricultural, livestock etc etc). 

Rather they did it through intelligent use of various types of leverage, including debt.

You can do some secret shopping around and just look on craigslist / redfin etc. for apartments for rent nearby and see if they're including utilities in rent. 2.

@Dante ForemanSome helpful information I've come across in my time as a landlord include:1.

It is 5 bedrooms, five bathrooms, and about 3200 square feet and a very desirable location.That square footage does not include the full basement that is underneath.

Sometimes I go back and forth with including closing (and initial repairs) costs or leaving it out.