So the LLC will need to sell the assets and 1031 into another instrument which can be compatible with 1031 but be completely passive and allow them to generate income on the deferred tax and deferred depreciation recapture for the remainder of their lives.

You've identified the lender's title policy as a junk "fee".You consider the lender's underwriting as well as the preparation of loan docs/security instrument by the lender's attorney to be "junk".There may be a few dollars to argue about in that list but not these.

@Gail Greenberg I don't know any HML or private lender that doesn't record a security instrument (deed or mortgage) against an asset they are lending on.

You should be able to do this yourself through online access to local land records... using the instrument number or liber/folio of those docs.

Basic instruments will be a few grand, gps system $20k plus.

Here's a sample of fine print:“Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.”Different lenders have different "fine print" statements that may be more grey and confusing.

For real estate loans, they all have two instruments (1) a promissory note which is an IOU and outlines the terms and (2) a mortgage or deed of trust which is a security instrument pledging the property as collateral for your note.

I have some great kiddos that have been instrumental in completing home improvement projects in the past and I believe it’ll be an easy transition into helping them become more financially conscious.

@Greg Grant For your scenario, I would think the cheapest money would be some kind of debt instrument on your primary home.

A local real estate attorney can draft you a note and a security instrument (deed of trust, etc) for this lending arrangement.It would be good to have a loan servicing company handle calculating/collecting payment for a small fee (like how property management companies manage your rentals for a small fee).