When the tide does shift, you'll be cruising on Easy Street while the others are still getting in the water, adjusting their goggles, and warming up their muscles.

The rules are designed to prevent related parties from engaging in exchanges that shift high basis property for low basis property, followed by a sale of the low basis property, effectively "cashing out" without recognizing gain.If you sell a property to a related party as part of a 1031 exchange, both you and the related party must hold the exchanged properties for at least two years following the exchange.

It also prevents you from making the #1 noobie mistake, which is buying in the hood just because it's cheap.

Might prevent him from buying another home for several years.

This would also prevent me from using the HELOC for a different type of investment like BRRRR or fix and flip.

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

To be transparent, there is not 100% full proof way of preventing fraud.

The absence of independently audited financials coupled with an abnormally high interest rate is what prevented me from proceeding any further. 

@Pat Aboukhaled I would ULS (unit lot segment) the primary house and include a clause in the call option that would prevent them acquiring the DADU.

I even go to repeat events (free seminars etc) because you might learn one or two things new that can save you money or prevent you from making a huge mistake.