Joint venture vs promissory note as lender

[Carl Cheung]

Hi, I have an opportunity with a friend who plans on flipping a house ($500k purchase price), rehab $50k, ARV $800k. I would be a silent partner putting in ~140k and he'll get a construction loan. He has done some spec builds and some flips and I trust that he will make me whole if things go south. Having said that though, it's always wise to have some protection. I plan on consulting an attorney but wanted to get some thoughts and get a better idea beforehand.

He mentioned doing a JV with 15% return after 6 months and that will go to 20% if it takes more than 12 months to finish. It seems that JVs are typically 50/50 since as the capital partner I am taking the majority of risk.

1) What is the best way to protect myself in case it goes south/the timeline drags on?

2) What if I'm only a 1% ownership? It seems that helps mitigate any liabilities for me in case anything happens? But what does that mean as far as my asset protection

3) Since I'm in second lien position, is it common to add a personal guarantee/collateral assignment? 

Alternatively I could do a promissory note with a personal guarantee, which I understand better. Here in WA, usury law states I can't charge more than 12% unless I use a broker.

1) Can I just not add a "closing" point of 3% to make my 15%?

2) What are the reasons a rehabber would choose a JV instead of a HML? Seems like they would keep more profit doing the HML route.

Thanks, appreciate the insight!