What's the best way to set up a partnership?

[Yonah Weiss]

I would like some tax advice from a CPA or EA who could compare two possibilities.

I have an opportunity to invest (passively) with a friend who will be buying SFRs, rehab them and hold to rent out. Keeping in mind the potential returns would be the same in either scenario. 

Option 1

Give him the money as a private loan, receiving 'mortgage payments' monthly but not actually owning shares in the property.

Partnering in ownership of each property, receiving preferred return.

From a taxation perspective which scenario is more beneficial?