1031 Tax Exchange & Seller Financing Conundrum

[Logan Kidwill]

So here is my situation;

Last year I found and assigned a deal to my dad in order for him to use a 1031 exchange.

I have managed the property over the past year and the plan was for me to buy it with a 20% down conventional loan after the 1 year period passed in order for him to take advantage of long-term capital gains.

I have ran into the following issues with trying to find financing.

1. The loan is too small.

2. Investment properties being too risky.

3. Fees being to high.

So, we are workshopping ideas and the possibility of doing seller financing with him; an interest only loan with a balloon payment after a year so I can own and manage it for a year then sell pay him off and take advantage of long term capital gains for myself. 

The main question is whether or not he can 1031 the payoff of the note when I sell the property?

Any help or advice would be greatly appreciated.