I am sure a Thumbtack PM works great when something legal goes down lol.

As long as we would be legally allowed to proceed with this plan, then the question remains, as you point out, what is the tax burden for the partial 1031 exchange.

Even if the sponsor lacking knowledge and experience can raise capital through syndication, their life will become a living nightmare of lawsuits, hostile social media posts, public ridicule, accusations, legal threats.  

Any legal issues I should be aware of in this situation? 

The Heloc can also pose as a debt obstacle since its an open end mortgage a.k.a credit card.a mortgage is also set up over 30 years so it offers a lower rate and payment. 

Signing the lease demonstrates they agree to the terms and then you can hold them accountable.If you don't do this, then the person named on the lease and paying the rent could disappear and you would have no legal authority to charge the remaining three for unpaid rent.

We already paid them a pretty sizeable entry fee ($30k) to cover some of their equity and debt in another project.

Additionally, since my parents are nearing the retirement age, I'd like to prioritize low-debt, high-cashflow deals.

The standard rule is $250k per person who legally owns/occupies for the 2/5 year requirement. 

That's before you pay any debt service.To answer your question: No, it's generally not a good idea to lose a bunch of money every month.