For instance, here in Seattle, people are pushing out north and south because of how expensive Seattle has become, and the lack of inventory/building space/regulatory burdens. 

What are some of the legal, regulatory pitfalls to watch out for?

Its really just the legal and regulatory stuff to really keep you "into trouble" --- if you mess up the regulatory commission can say they already told you so... 

As an agent I obviously don't want to work with anyone who doesn't want to work with me, but I also want to get paid as well as comply with my brokerage and state regulatory requirements. 

They will come with regulatory requirements (especially the well) that you need to comply with. 

Biggest con for me is the regulatory environment in the city.

If this is going to a repetitive situation, then you should connect with legal counsel to make sure that you're protected from regulatory and operation risks on an ongoing basis.

You might say its where the cancer begins, trying to out fox the regulatory requirements that were set there for a reason is not the way to conduct business. :)

Ann is absolutely correct in that first step, keep in mind that loaning your money is something that isn't too complicated from a regulatory stand point, but if you partner with others or use other people's money to lend, you'll be in for one of the most regulated business ventures you can get involved with!

I can't even start to imagine any other regulatory issues that may arise in SF.