Is this common? 

A 1031 exchange can only be used if your exchanging one "like kind" property for another.

So, ideally we would sell the house to a retail buyer with some kind of agreement that only certain amount of land will belong to the house and we will be working to subdivide the land.Has anybody done something like this?

Condo associations generally take care of common areas like landscaping, pool areas, and routine maintenance/repairs of the exterior of the building.

Height restrictions when selling lots are common as are anti demo restrictions on historic homes. 

So I am in a unique situation currently because I don't own a home and live with my parents (common cultural thing for South East Asians) and now they are moving to Virginia but aren't selling this home.

What kind of investing are you most interested in? 

This is the kind of business where you pay for your education through mistakes and over coming obstacles.  

The place I currently rent for $3,900 would cost $1.2mm to buy with a monthly common charge of $800.

Let us know what kind of deals you're looking for and add me to your contacts.