The notes are a financial instrument and in order to qualify for 1031 treatment when you sell investment real estate you must purchase more investment real estate.  

Properties acquired for rehab are actually held for sale and not held for investment and therefore do not qualify for 1031 Exchange treatment. 

The accounting treatment would be the same.

Wait til the kid breaks a leg, your wife needs surgery or you need some ongoing treatment.....the medical benefits can far outweigh the money.

Then, I'm looking for a 22% cap rate after taxes, we all know I won't be buying many properties.For your cap rate, you have inside of that a "managers rate of return" or the "Internal rate of return" arriving at that, bringing each dollar received in the future back to its present value, the beginning rate selected is that expected in the market compared to other investments requiring similar risk, costs of management and administrative expenses as well as tax treatments.

She hopes to scale the rental business and hire a property management company (1099) to manage all doors.Investor is also a broker, and would like to reinvest any commissions, rather than take them as salary or dividend (unless this really screws up tax treatment somehow). 

Properties acquired for rehab and then immediate sale do not qualify for 1031 Exchange treatment. 

My dad is going down there and will be down there for the next 3 months for cancer treatments.

They called me saying they weren't able to pay because the one tenant's mother was diagnosed with cancer and they needed to put available funds towards treatment.  

Like with any legal issue, the answer is that it depends on far more information than any one person on the internet has access to; including a state's individual treatment of personal liability, the financial structure of the individual or proposed business, and a whole host of other factors.If your chief concern is asset protection, stop taking advice from strangers online.