Investing with a friend- whats fair and tax?

[Andrew B.]

I have flipped a few houses with great success and a good friend wants to put in 50% of the purchase price and 50% of all other cost with my next rehab.

I have always used hard money at 5 points and 12% thereafter. I found the property in question and will be doing all the work etc, he's literally just putting up 50% of the cash. Now if it was hard money I would borrow 70% and then add my 5 points and 4 months holding the property- not so bad.

What would be a fair deal in the experts eyes? I have thought of taking 50% of the selling price and adding extra on for my work etc, and then the obvious of maybe giving him a better deal than my hard money lender at around 20% straight-up. Any thoughts would be greatly appreciated. Im sure there are pros and cons when it comes to working with a friend in terms of not having to list him as a 1st lien holder etc. Is it worth taking the knock a little profit?? What about the tax I end up having to pay on our "combined" profit in the end.

Thanks