But fundamentally, you've borrowed money, spent it, then aren't going to pay it back.

So one of the books by Irwin are a little out of date but the fundamentals are the same. 

Besides that doesn't solve the fundamental issue. 

This is a fundamental confusion of sec 121 and sec. 1031.Second, You're right, taxes in general and in CA in particular can be brutal but equity in a property is not an indicator of profit or tax burden in the least.  

In fact, the ability of a property owner to use the owner's property as the owner sees fit, including renting its use to someone else, is one of our nation's most fundamental and legally protected rights, jealously guarded by the courts.

You are dealing with a group of people who are fundamentally stupid, and tripping them up is ridiculously easy.An ex tenant of ours had a fictitious lawyer call us up, threatening all sorts of things.  

Is there anything that I am missing fundamentally?

., if it would impose an undue financial and administrative burden on the housing provider or it would fundamentally alter the nature of the provider's operations.

Steve, I think you have a fundamental misunderstanding of the concept.

FIRST establish your investor identity; what type of deals do you want to get involved in (flips, wholesales, buy & hold, rent to own, etc), what type of property do you want to invest in (single family homes, multi family, commercial, etc), what's your risk tolerance, what sort of returns do you expect to get, do you want to be hands on or make it as passive as possible, etc.SECOND pick a strong market based on it's ability to meet your investor identity and based on strong fundamentals like I mentioned above.THIRD put together your team in that market.