Advice Needed: Mother In Law Housing Venture

[Eric R. Dehner]

Hi guys, 

My wife and I recently moved back to San Diego California.  We are looking for at homes in this red hot market and realize we are getting priced out of the coastal cities.  My mother in law lives in Point Loma (Coastal) with her partner and has her original home (now a rental) in North Park.  This home has appreciated in value and she is now $400K positive.  

She would like to sell this home a roll that money into a joint housing venture with my wife and I. We would look for a property that has an existing ADU or the potential to build an ADU so she can still have rental income during retirement from the ADU.

What important points should we discuss when talking through this venture?  Has anyone structured an agreement like this?  Things that come to mind....

- 1031 exchange (rental vs. primary residence)

- Future sales agreement 

Any help would be much appreciated
Eric