Now the cashflow doesn’t take into consideration repairs and replacing things over a period of time.

The purchase price of our house (in Illinois) is $68k and one of the insurance agents I got quotes from (still waiting on the other) gave a quote actual cash value (56,000 being the coverage amount) for $300/year, but when I asked for replacement cost coverage, they did coverage for 201,000 which is $900/year.From reading through past posts, I am quite sure I want the replacement cost, but do I need 200k in coverage?

I ended up replacing system.  

For small multi family properties(2-3 units) appraisers use three methods: market value, income approach, replacement cost.

Even if you don'st spend it, you'll probably need $15-20K in reserves for one major issue or a roof replacement depending on it's age.

I have never rehabbed a house so I don't necessarily know what a contractor would want to do to it, other than obvious stuff like a new roof and paint or replacing old cabinets.

1031 could work, but as Dave Foster mentioned only if you could prove that your intent with the current property was to hold as a rental and that your intent with the replacement property is to hold as a rental.

Finding good tenants is very simple and in your situation you can allow him as much time as necessary for you to find a replacement tenant without having any vacancy.

I took pictures of all kinds of issues: damage to most of my new cabinets they installed, electrician replaced a bunch of new lights and fan I had a prior contractor put in, wood trim was installed poorly unevenly cut, drywall finishing looked terrible, the plumbing they roughed in didn't line up with the vanities they knew were there to be measured... among many other issues. 

In the United States people like to go out and do things for activities.Right now as we speak Macy's that are going dark and instantly being replaced by entertainment type complexes among many other tenant types.The key is not whether you have an empty space but where is it located and is the dirt valuable?