I am not a lender, but they do want to see a decent amount of cash reserves, which is sounds like you have.

Supplement and eventually replace w2 income.questions: split the property to make it 2 separate rentals?

Through depreciation, other income taxes are offset, through debt paydown and appreciation, he's going to gain $thousands per year in equity.Subjectively, it may appear not to be a deal, but if the buyer understands these factors and wants the property, an entry fee under $10K sounds like a deal. 

Any expenses for your property that is shared by both sides is split 50/50, such as insurance, mortgage interest, property taxes, or major repairs such as roof replacement (which has to be capitalized and depreciated). 

To qualify for a 1031 exchange, the properties you sell (relinquished properties) and the property you acquire (replacement property) must be held for investment purposes or used in a trade or business.

The 2nd and 3rd floor needs rehab work including, - Full Painting Flooring (Vinyl/Linoleum)- Replace Kitchen cabinets- Renovate the Bathrooms (replace tiles)- Drop a wall and make a corridor- Electrical throughout My question is, do I need to apply for a permit for all of this work?

Replace your W2? 

 $200/psf doesn't sound too extreme for San Diego.But when you say full gut, do you also mean all new electric, new plumbing, new roof and gutters?  

It also sounds like this is a multi-family property? 

We need to buy out his brother and probably replace the trailer and then find tenants.Question if you've made it this far: When in this process do I need to set up an LLC?