Structuring a sweat equity partnership

[Everett E.]

I've been talking to a friend about going in on a sweat equity deal together in a market I feel has a lot of potential in the near term. I'd put in the down payment and pay for materials and he would live in the home and remodel the house. After a few years, we would split the profits, defined as appreciation minus costs. I've never done something like this and am curious about the best way to structure it. Would I create an LLC for the property with an operating agreement? Would I just have him sign a lease with these stipulations in place?

As far as exit criteria, we'd hold onto the property one of us wanted out, in which case we'd sell the house or one of us would buy out the other. Any advice would be greatly appreciated.