How to pay a private investor?

[James Warner]

I'm guessing this is the right sub-forum since this is a tax/withholding/legal/investor contract kind of question.  Please point me in the correct direction if I've put this in the wrong place.

I have wanted to invest in multi-family for a while now, just recently creating a single-member LLC to do this. While telling a friend about the business I created, he says he wants to throw in some of his own money as a passive investor in order to turn a profit on some cash laying around. As I'm researching properties for us, I'm left wondering how this transaction will go down and how I'd pay him.

To make numbers easy, let's say we find a $100k MFR and we want to go in 50/50 on the $30k downpayment as well as the subsequent mortgage on that property. The LLC is still new and has none of its own credit, so the property and mortgage will probably go in my name and be based on my credit score and debt/income ratio (all of which are fine). If would be easiest for this transaction if I personally closed on the property, cut the $30k check and signed for the $500/mo (or whatever) mortgage, then informed him that he owed me $15k and $250/mo for the next 30 years.

Then as rent checks come in (let's say 6 units at $800 apiece, so $4800/mo made out to the LLC), the LLC would pay the mortgage (-$500), the property manager (-$480 at 10%), set aside funds for maintenance/capex (another 15% of gross, -$720 in this example), any applicable utilities, taxes, insurance, etc (say another $500), that leaves us at 2600/mo. profit. Then the business will need to take some amount (say 10% of gross) and split the remainder ($2120) between the two of us.

- How do I structure the purchase?  Is this entirely a personal Fannie loan in my name or a commercial loan for the business?

- Is my description of closing anywhere close to accurate? At what point does the business start owning properties instead of me (I'm aware of the quit-claim process, but I don't want to give banks the opportunity to make a loan due immediately like this).

- How do I structure his payment out of this?  He is not a partner or employee in the business, he's only an investor.  Therefore, I don't think I need to withhold taxes, but do I 1099 him at the end of the year?  How do I treat him in this?

- Are my numbers toward the end of this reasonable (the company taking 10% for overhead?  splitting a 50/50 input as 50/50 output, etc?)

- I haven't fully wrapped my head around syndication, but I don't think that's what I'm doing here, or is it?  I know I can't approach other people asking for their money, but if it's important, he brought up the idea of contributing on his own.