Is using a loan from my 401(k) to purchase a property a No No?

[Mark Wurtemberg]

Is using a loan from my 401(k) to purchase a property a No No? And how would I structure a deal if I have no money in the deal?

A close friend has learned of what I am doing (purchased 4 Single Family Homes this year with great cash flow) and wants to do the same. However, he has no cash. After chatting with him a bit I remembered that he has $100k plus in his 401(k). I proposed that he get a loan from is 401(k). Purchase property with that loan and pay back the loan, at 4%, just as if he was paying a mortgage. This works great for him as he plans to be with his company for 15+ more years therefore avoiding the loan paid in full if not repaid upon leaving the job. Plus the company match is nice. FREE MONEY. Furthermore these homes are in the $35k price range and would be purchased outright, no loan, so the loan from the 401(k) isn't a down-payment on another loan, possibly overextending leverage. 

Questions:

1. What are the pros and cons of this 401(k) loan strategy?

2. My friend also wants to partner with me as he wants to be more hands-off. Yet he would be coming in with all the cash on this next deal. How can I structure the deal so I make money as well as my friend? (Understanding he would make the bulk as his money is in the deal) I have heard of the following structure....Thoughts?

- I receive 2% of the acquisition right off the bat as I am able to obtain these deals

- I receive 2% of the monthly rent (not much in this example, but I like the idea as I scale)

- Partner receives 8% of his investment 

- Partner & I then split the remaining 

- Example: $100k home cash flowing $1000 net per month

- Partner receives the following monthly: $667, 8% on investment + half of remaining (($1000-$667-$20)/2)=$156 for a total of $823

- I receive $2000 off the bat, 2% of acquisition (possibly paid out in installments) Plus the following monthly: $20, 2% of rent + half of the remaining (($1000-$667-$20)/2)=$156 for a total of $176

***Sorry to get nerdy algebra on ya***

I know the net would go up and down due to larger expenses, new A/C, etc. And in the event our net is below the 8% to my partner, I would make the investor whole by making it up the next month(s), thus my remaining payout would be zero.