I had to immediately repay all of the loan OR take it as an unqualified distribution (pay income tax and 10% penalty on total outstanding on loan).

For example if the building were to cost $750K do we rent per square foot or some other derivative?  

@Tiana O.The way I understand it You will have to pay yourself some salary  commensurate with the work your doing including FICA but the rest can be a dividend /distribution void of SSMED Tax. 

You should talk with an accountant and a lawyer (I am not one), but for tax purposes if you take any distributions I believe they count as income anyway.

Some thoughts:-You make a lot of assumptions about how accredited investors got their money, particularly the false equivalence of wealth being derived solely from business acumen/knowledge.

That being said, with multifamily properties (at least with those over a couple units), the value is derived from the cap rate (net income / Price) as how that compares to similar multifamily properties nearby.

The goal is to raise capital from 2-3 parties to invest in a single property and distribute profits over 3-7 years.

You should look into Series-LLC and see if that's an option for you - then you don't need to worry about this question, as you can place a property in its own children Series-LLC that you can form when needed.As for distribution, you can have one or more per LLC, and that depends on multiple factors:- property class - you might not want to mix A class property with a D class property in the same LLC, due to different tenant level- cash flow - you might want to keep your cash flow cow separate from the ones that barely produce- equity - you might want to keep the one with large equity in its own LLC while you can group the ones with little equity in another LLC (let's say you have one with 50K equity in its own LLC and 3 other each with only 10K in another LLC, till their equity grows to your risk threshold when you move them out in their own LLC).- number of units (in the case of MF)- location of real estateThe investor has to decide what mix is optimal for their situation.

See the following for more on the 401k distribution rules. https://www.irs.gov/retirement-plans/plan-particip...

Is there a legal standard in this case for distribution of a late fee when the management agreement does not specify?