They would get that $500K tax free and the rest of the tax would be deferred in the 1031.A very elegant solution that puts $500K tax free in their hands now. 

Bonus - the interest on the loan is tax deductible!

If you want to play a passive role, a real estate syndication or debt fund could be a great way to go.

An update one year later after this post, I now have:- Got my property and casualty license and wrote 370+ policies in a year- Saved up a few more thousand dollars in investable cash, paid off $20K in debt and raised my credit score by 100 points- Launched a direct to seller cold email marketing campaign and generated leads for cheap- Got connected with a few real estate investing communities like Subtle Asian Real Estate and Pace Morby's SubTo- Aggressively read and studied as much as I can get my hands onThat being said, I decided to run a marketing campaign to generate distressed seller leads in Phoenix, Arizona, mostly because:1.

The majority have evictions on their record, don't make enough income or have a lot of debt under their name.Comparing other rentals on Zillow, my asking rent is $1100 while other properties are trying to rent at $1200.

According to our understanding:1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

My strategy incorporates asset protection measures like LLCs, specific trusts as well as professional property management to spread risk and ensure quality operations.As well as using tax codes to my benfiitSection 179, IRC Section 162, Cost Segregation and Bonus Depreciation and later 1031 them out for larger projects. 

Focus on absentee owners and start with the ones who live the farthest away and only own one property in the area since they have the least use for the property.You can also drive for dollars, looking for anomalies of disrepair and then look them up in the tax records and use a site like Spokeo to do cheap skip tracing.

Had to negotiate to 999,000 only to stay under the NYC luxury tax.

Plus with no state income tax, cheap insurance, and very low property taxes, I’m probably starting $20k ahead of most people, and that’s a tax free $20k.).